Central Bank of Argentina

The Central Bank of Argentina, formally the Central Bank of the Argentine Republic (Banco Central de la República Argentina, or BCRA), is Argentina’s central monetary and financial authority. It is an autarchic public institution whose responsibilities include monetary stability, financial stability, management of official foreign-exchange reserves, supervision of banks and other financial institutions, regulation of payment systems, and administration of the national currency framework. Its Organic Charter also identifies employment and economic development with social equity among the institution’s objectives, while requiring those goals to be pursued within the broader policy framework established by the national government. The BCRA was created in 1935 through six Acts of Congress, replacing Argentina’s currency board, which had operated since 1899. Economist Raúl Prebisch helped draft the charter after a study of Argentine finance prepared in connection with the Bank of England. Ernesto Bosch became the institution’s first president and remained in office from 1935 to 1945. During its first decade, the bank was privately structured and British interests held a majority stake. Its president was appointed by the Argentine president, while most directors were executives of private banks. This arrangement reflected the financial and trade relationships of the period, including the treatment of Argentine trade-surplus reserves under the Roca–Runciman framework. The bank was nationalized in 1946 under President Juan Perón. The institution’s role has changed substantially with Argentina’s economic regimes. During the late twentieth century it operated within periods of state-directed credit, recurring inflation, debt crises and exchange-rate controls. In 1980 it introduced Circular 1050, which indexed certain loans and mortgages to the local value of the United States dollar. The policy became highly damaging after the peso weakened sharply, contributing to the failure of many households and businesses before it was rescinded in 1982. Under the Convertibility Law introduced in 1991, the peso was fixed at one-to-one with the United States dollar. The BCRA’s principal monetary function during that period was to maintain foreign-currency reserves broadly consistent with the monetary base, but the arrangement limited its ability to conduct independent exchange-rate policy. Convertibility ended during the severe crisis of 2001–02, followed by a major peso devaluation. In the subsequent period, the bank increasingly bought and sold foreign currency to influence the exchange rate, accumulate reserves and manage the liquidity effects of trade flows. The BCRA has also been central to disputes over institutional independence and public-finance policy. In 2006, the government used reserves to repay Argentina’s outstanding obligations to the International Monetary Fund. In 2009–10, President Cristina Fernández de Kirchner’s administration sought to use central-bank reserves for public-debt payments, leading to a confrontation with BCRA president Martín Redrado. His removal in January 2010, followed by the appointment of Mercedes Marcó del Pont, prompted legal and congressional criticism concerning the bank’s statutory autonomy. A 2012 charter reform expanded the bank’s mandate and permitted greater use of reserves and central-bank lending capacity in support of Treasury financing. In later periods the institution dealt with falling reserves, inflation, parallel exchange markets, capital restrictions, changing benchmark interest rates and repeated peso depreciations. Its policy instruments have included reserve management, interest-rate adjustments, foreign-exchange intervention, bank regulation, directed lending and changes to reserve requirements. The BCRA remains a key institution in Argentina’s economic policy, although its practical independence has varied with government policy and successive financial crises.

Argentina created the Central Bank of the Argentine Republic in 1935 through six Acts of Congress. The new institution replaced a currency board established in 1899 and was designed amid international debate over the appropriate structure of monetary and banking institutions. Its charter drew on a 1933 analysis of Argentine finance associated with Sir Otto Niemeyer of the Bank of England. Argentine economist Raúl Prebisch helped formulate the charter and served as general manager until 1943. Ernesto Bosch became the first president and held the position for a decade. The BCRA’s original structure differed from its later public form. It was privately organized during its first ten years, with British interests holding a majority stake and private-bank executives occupying most board seats. Its president was appointed by the national executive, but the board reflected the banking sector’s private ownership. The institution’s reserve arrangements were also influenced by Argentina’s trade relationship with the United Kingdom. Under the Roca–Runciman framework, reserves generated by Argentine trade surpluses with Britain were placed in escrow at the Bank of England. By 1945, a substantial portion of Argentina’s reserves was difficult to access, helping create the political basis for nationalization. The government of Juan Perón nationalized the BCRA in March 1946. The central bank later operated through multiple and sometimes contradictory policy regimes. During the 1970s and early 1980s, Argentina experienced financial liberalization, inflation, debt accumulation and major currency instability. In April 1980 the BCRA introduced Circular 1050, which linked certain financial obligations to the local value of the United States dollar. As the peso collapsed, the peso value of dollar-linked debts increased dramatically. The resulting burden contributed to widespread bankruptcies and mortgage distress. Domingo Cavallo rescinded the measure in 1982. A different institutional framework emerged with the Convertibility Law, which took effect in 1991 and established a one-to-one exchange rate between the peso and the dollar. Under convertibility, the BCRA’s monetary role was closely tied to the maintenance of foreign-currency reserves against the monetary base. This arrangement helped constrain some forms of monetary expansion but left the bank with limited exchange-rate flexibility. The regime ended during the 2001–02 economic crisis. The peso was devalued sharply, and the BCRA shifted toward active foreign-exchange intervention and reserve accumulation. During the post-convertibility period, the bank commonly purchased dollars generated by trade surpluses and sold foreign currency when market conditions or policy objectives required it. This approach sought to maintain an exchange rate considered supportive of exports and import substitution while building a reserve buffer. At the same time, rapid money-supply growth and persistent inflation generated criticism of monetary policy. In 2006, Global Finance magazine gave BCRA president Martín Redrado a poor assessment, arguing that the bank had not tightened policy sufficiently during a period of strong economic growth. The BCRA nonetheless earned substantial returns on its reserves during that period. The 2008 global financial crisis and Argentina’s continuing debt-service needs intensified tension between the bank’s formal autonomy and the government’s financing requirements. In December 2009, the administration of Cristina Fernández de Kirchner ordered the creation of a reserve-funded account intended to support public-debt payments. Redrado objected. He was dismissed by presidential decree in January 2010, an action challenged by opposition lawmakers and litigated in court. Mercedes Marcó del Pont subsequently became president. The dispute raised questions about whether the BCRA’s statutory autonomy could prevent the executive from directing reserves toward fiscal purposes. A court injunction also complicated the proposed reserve transfer because of possible claims by bondholders who had rejected earlier restructurings. The BCRA’s development role expanded after 2010. The Bicentennial Fund financed fixed-investment projects, and proposed statutory changes sought to permit a wider commercial-lending role. In March 2012, the Senate approved a charter reform that broadened the bank’s objectives and permitted greater use of reserves for public debt while increasing its ability to lend to the Treasury. During 2014, president Juan Carlos Fábrega adopted a more restrictive monetary stance, raising the benchmark three-month note rate above 28 percent. Alejandro Vanoli continued much of that approach after succeeding Fábrega. From 2012 onward, tighter foreign-exchange controls contributed to the reappearance of a parallel, or “blue,” exchange market. Official reserves declined from the high levels reached in the late 2000s and early 2010s, reflecting weaker trade surpluses, external interest payments and capital-account pressures. In December 2015, the Macri administration removed the currency controls that had been in place for several years. The decision produced a large peso devaluation and marked another change in the BCRA’s exchange-rate operating environment. The institution continues to combine monetary policy, bank supervision, reserve management and payment-system oversight in an economy characterized by recurring inflation, currency volatility and changing relationships between the central bank and the national government.

• 2015

  Currency controls removed

  [1]Central Bank of Argentinaen.wikipedia.org

  The Macri administration ended several years of foreign-exchange controls, resulting in a substantial peso devaluation.

• 2012

  Organic Charter reform

  [1]Central Bank of Argentinaen.wikipedia.org

  Reform broadened the BCRA’s mandate and expanded the permitted use of reserves and central-bank credit in support of public finance.

• 2010

  Leadership crisis over reserve use

  [1]Central Bank of Argentinaen.wikipedia.org

  President Martín Redrado was removed after opposing the government’s proposed use of reserves for public-debt payments.

• 2006

  IMF obligations repaid

  [1]Central Bank of Argentinaen.wikipedia.org

  Approximately US$9.8 billion in BCRA reserves was used for an early repayment of Argentina’s IMF debt.

• 2002

  Convertibility ends

  [1]Central Bank of Argentinaen.wikipedia.org

  The one-to-one exchange regime was repealed during the economic crisis, followed by a major peso devaluation.

• 1991

  Convertibility begins

  [1]Central Bank of Argentinaen.wikipedia.org

  The Convertibility Law fixed the peso at one United States dollar and tied monetary management to reserve backing.

• 1982

  Circular 1050 rescinded

  [1]Central Bank of Argentinaen.wikipedia.org

  The policy was cancelled after its effects on mortgages, businesses and the banking system intensified.

• 1980

  Circular 1050 introduced

  [1]Central Bank of Argentinaen.wikipedia.org

  The BCRA adopted dollar-linked indexation for certain loans, a policy later associated with severe financial distress after the peso collapsed.

• 1946

  Nationalization

  [1]Central Bank of Argentinaen.wikipedia.org

  The Argentine government nationalized the institution amid concerns about reserve ownership and access.

• 1935

  Central bank established

  [1]Central Bank of Argentinaen.wikipedia.org

  Six Acts of Congress established the BCRA and replaced the currency board that had operated since 1899.

Argentina’s statutory central monetary authority and principal public institution for monetary, foreign-exchange and financial-system policy.

• Monetary policy · 1935

  Monetary policy framework

  The BCRA uses interest rates, liquidity operations, reserve requirements and other instruments to influence money-market conditions, inflation dynamics and credit. Its policy framework has varied from reserve-backed convertibility to discretionary intervention and more active interest-rate management.

• Currency · 1935

  Argentine peso and currency management

  The institution manages the monetary framework surrounding Argentina’s national currency, including currency circulation and the exchange-rate environment. Depending on the policy regime, this has involved fixed-rate convertibility, foreign-exchange controls, market intervention, reserve accumulation and managed depreciation.

• Reserve management · 1935

  Foreign-exchange reserves

  The BCRA holds and manages Argentina’s official international reserves. It has used purchases and sales of foreign currency to influence liquidity, support external payments, moderate exchange-rate movements and provide a buffer during periods of financial stress.

• Financial regulation · 1935

  Banking supervision

  The bank oversees Argentina’s banking and financial system within its statutory authority. Its supervisory role includes prudential regulation, financial stability measures, liquidity support and oversight of institutions and payment arrangements.

• Public finance and credit · 2010

  Directed and development credit

  At various times the BCRA has supported government-directed lending and development financing. The Bicentennial Fund, created in 2010, financed fixed-investment projects, while later charter changes broadened the institution’s permitted lending and public-finance functions.

• 2010

  Redrado removal and reserve-use dispute

  President Martín Redrado was dismissed after opposing the government’s plan to use central-bank reserves for public-debt payments. Opposition lawmakers questioned the legality of the action and argued that it threatened the BCRA’s nominal autonomy. Court proceedings also affected the proposed transfer because of possible creditor claims against reserves.

  Source

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• 2015

  Remove foreign-exchange controlsStrategy

  Background

  The incoming Macri administration sought to dismantle currency restrictions that had been in place for approximately four years.

  Action taken

  The government removed the controls and allowed a major adjustment in the peso’s official exchange rate.

  Aftermath

  The peso depreciated by about 30 percent, receiving both support and criticism from economic observers.

  Source

• 2014

  Raise short-term interest ratesPrice change

  Background

  Falling reserves, currency pressure and high inflation led the BCRA under Juan Carlos Fábrega to adopt a more restrictive monetary stance.

  Action taken

  The benchmark three-month note rate was raised above 28 percent.

  Aftermath

  The move absorbed substantial liquidity and was associated with lower inflation, although it sharply reduced central-bank operating profits.

  Benchmark three-month note rate. Above 28% (2014)

  Source

• 2012

  Broaden the Organic CharterOther

  Background

  The government sought greater flexibility to use reserves and central-bank credit in support of public finance and development objectives.

  Action taken

  The Senate approved reforms allowing broader use of reserves for public debt and expanding the BCRA’s lending capacity to the Treasury.

  Aftermath

  The bank acquired a wider formal policy mandate, while debates over monetary independence and inflation risks intensified.

  Source

• 2010

  Create a reserve-funded public-debt accountStrategy

  Background

  The government needed domestic financing for public spending and foreign-debt service after the global financial crisis.

  Action taken

  The administration ordered an account funded with approximately US$6.7 billion of BCRA reserves and removed President Martín Redrado after his opposition.

  Aftermath

  The decision triggered a leadership crisis, congressional opposition and court intervention concerning central-bank autonomy and creditor claims.

  Proposed reserve-funded account. (December 2009–January 2010)

  Source

• 2006

  Use reserves for early IMF repaymentOther

  Background

  The government pursued a wider debt-restructuring and external-financing strategy after Argentina’s earlier default.

  Action taken

  Approximately US$9.8 billion in BCRA reserves was used to repay Argentina’s IMF obligations ahead of schedule.

  Aftermath

  Reserves fell by roughly one third temporarily, while the government became more reliant on domestic bond financing.

  Central-bank reserves used for IMF repayment. (January 2006)

  Source

• 1991

  Operate under peso-dollar convertibilityStrategy

  Background

  Argentina adopted a fixed exchange-rate regime to stabilize the currency and combat chronic inflation.

  Action taken

  The BCRA managed reserves and the monetary base within the one-to-one peso-dollar framework.

  Aftermath

  The framework constrained exchange-rate flexibility and ended during the 2001–02 crisis.

  Source

• 1980

  Introduce Circular 1050Other

  Background

  The measure was intended to protect financial institutions from the effects of payments made in a rapidly devaluing currency.

  Action taken

  The BCRA indexed certain mortgages and financial obligations to the local value of the United States dollar.

  Aftermath

  The peso’s subsequent collapse caused debt burdens to surge, damaging households and businesses. The measure was rescinded in 1982.

  Source

• 1946

  Nationalize the central bankStrategy

  Background

  Reserve arrangements connected with Argentine trade surpluses and the bank’s private ownership structure became politically controversial.

  Action taken

  The Perón government nationalized the BCRA.

  Aftermath

  The bank became a state institution and its role was more directly integrated into national economic policy.

  Source

• 1935

  Create a national central bankStrategy

  Background

  Argentina sought to replace its long-running currency-board arrangement with a formal central bank based on contemporary monetary and banking analysis.

  Action taken

  Congress enacted six measures establishing the BCRA and defining its initial governance structure.

  Aftermath

  The institution became the central vehicle for monetary and banking policy, although it was nationalized eleven years later.

  Source

1. 1Central Bank of Argentinaen.wikipedia.org