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2021 | OriginalPaper | Chapter

5. Central Bank Statutes and Autonomy

Author : Andrea Lucia Tapia-Hoffmann

Published in: Legal Certainty and Central Bank Autonomy in Latin American Emerging Markets

Publisher: Springer International Publishing

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Abstract

This chapter reviews the legal provisions of the statutes of six Latin American central banks to evaluate if the statutes provide certainty concerning central bank autonomy. The statutes allow reviewing the provisions related to personal, financial, and operational autonomy as well as the accountability arrangements of the central banks. Importantly, the analysis of the statutes helps determine if the legal frameworks regarding central bank autonomy are consistent overall. For example, it is conceivable that a central bank has autonomy of constitutional rank but that the statutes place the bank within the public administration, i.e. under the control of the executive, or prescribe that the government decides on the staff, the finances, or the bank’s operations, which diminishes certainty about the autonomy of the bank.

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See, e.g., Smits (1997), p. 176.

Bade and Parkin were the first to code central bank autonomy. Their study included twelve industrial countries. See Bade and Parkin (1977).

I will often refer to the often-cited Cukierman-Index, see Cukierman et al. (1992). This study developed a detailed index on central bank autonomy for 72 countries between 1980 and 1989, including not only industrial economies but also emerging markets and developing countries.

The influence of central banks’ legal autonomy on inflation was higher in industrial countries than in developing economies. The main difference between them was the difference in institutional strength. See Cukierman et al. (1992).

Studies on Latin America include Jácome (2001), p. 13. See also Jácome and Vásquez (2008). For further modifications and updates using additional countries, see Crowe and Meade (2007), pp. 71–72.

For a recent study using data up to 2010 and focusing on transparency as measure for accountability, see Dincer and Eichengreen (2014).

Cukierman et al. (1992), pp. 355, 361–362.

For an overview of the literature and the outlined characteristics of central bank autonomy in various papers, see Laurens et al. (2007).

Apel (2007), pp. 52–53; see also Alesina and Summers (1993), pp. 152–153; Bade and Parkin (1988).

Bini Smaghi (2007), p. 45.

Crowe and Meade (2007), p. 86. For a study on the relationship of the number of board members and inflation, see also Berger and Nitsch (2011).

Jácome (2001), p. 7.

CBCH Law Sec. 7; BM Law Art. 38.

BRC Act Art. 28; CRBP Law Art. 9.

See LSFN Brazil Art. 6.

Internal Rules of the Central Bank of Brazil Art. 5 [Regimento Interno do Banco Central do Brasil, Diário Oficial, 8 September 2011] [hereinafter RIBC Brazil].

BCRA Law Sec. 6: “The Bank shall be governed by a Board consisting of a Governor, a Deputy Governor and eight members […].”

Bernhard (1998), p. 314.

Fernández de Lis (1995), p. 11.

Bernhard (1998), p. 324.

Quintyn and Taylor (2002), p. 20. For more, see Crowe and Meade (2007), p. 70; Hasse (1990), p. 116.

Bernhard (1998), p. 314.

Const. Mexico Art. 28 para 7.

BCRA Law Sec. 7.

Executive Decree 179 of 2015, Argentina [Decreto Ejecutivo 179, 21 December 2015].

CBCH Law Sec. 7.

The Congress also must ratify the Executive’s appointees. See CRBP Law Art. 9.

Const. Colombia Art. 372.

BRC Act Art. 35.

The voting method to elect the members of the central bank board is secret ballot after a public hearing. See Const. Brazil Art. 52 (III d).

RIBC Brazil Art. 5.

LSFN Brazil Art. 6.

Neumann (1991), p. 104.

Smits (1997), p. 63.

Hasse (1990), p. 116.

Cukierman et al. (1992), p. 363; see also Neumann (1991), p. 104.

Valencia (1998), p. 23.

Massad (1989), p. 85; see also Cukierman et al. (1992), p. 363.

Cukierman et al. (1992), p. 363.

Smits (1997), p. 157.

Neumann (1991), p. 104.

CBCH Law Sec. 8.

In addition, the President of Chile cannot be immediately re-elected. See Const. Chile Art. 25 para 2.

According to BM Law Art. 40, the board’s governor will be appointed for a term of six years and the deputy governors for 8 years.

Const. Mexico Art. 83 forbids presidential re-election.

BM Law Art. 40.

BCRA Law Sec. 7.

Note that Const. Argentina Art. 90 allows for consecutive presidential re-election.

BRC Act Art. 37.

Const. Colombia Art. 190.

BRC Act Art. 34.

BCR Peru Art. 9.

Const. Peru Art. 86, para 2.

Jácome and Vásquez (2008), p. 799.

BRC Act Art. 28 (a).

BRC Act Art. 37 para 2; CBCH Law Sec. 24; and CRBP Law Art. 38 (a).

CRBP Law Art. 24 (s); CBCH Law Sec. 18 (4).

According to the law, the president of the bank’s board is one of the four members appointed by the President of the country. See CRBP Law Art. 9.

CRBP Law Art. 24 (s).

CRBP Law Art. 36.

CRBP Law Art. 38 (a).

CBCH Law Sec. 8.

CBCH Law Sec. 22 (6).

The law prescribes that the bank’s board shall also “[a]ppoint, accept resignations and terminate the working contracts of the General Manager, the General Counsel and the General Auditor.” See CBCH Law Sec.18 (4).

CBCH Law Sec. 24.

BM Law Arts. 38 and 47.

The law states that the bank’s governor is “responsible for the management of the Bank”. See BCRA Law Sec. 10 (a). However, the management of the bank will be exercised by the sub-managers, in line with BCRA Law Sec.16 which states that “[t]he Bank shall be managed through deputy general managers […]”.

BCRA Law Sec. 10 (d).

BCRA Law Sec. 7.

LSFN Brazil Art. 6 (I).

Brazil’s president also appoints all the other board members, see RIBC Brazil Art. 5.

Apel (2007), p. 53.

CRBP Law Art. 11.

Const. Colombia Art. 372.

Neumann (1991), p. 102.

RIBC Brazil Art. 5.

BCRA Law Sec. 6.

CRBP Law Art. 11.

BM Law Art. 39 (II).

BRC Act Arts. 29 (b) and (c).

Additional activities of ECB members also require board approval, see Smits (1997), pp. 163–164.

BCRA Law Sec. 8 (a).

CBCH Law Sec. 14 para 1.

CBCH Law Sec. 14 para 5.

CBCH Law Sec. 15.

BCRA Law Sec. 8 (b).

BCRA Law Sec. 8 (a).

BRC Act Arts. 31 (a), (d) and (g).

BM Law Art. 42.

Only the president of the bank’s board has a salary. The other members receive fees for their attendance to the board’s meetings. See CRBP Law Art. 29.

CRBP Law Art. 12 (e).

CRBP Law Art. 12 (f).

CRBP Law Arts. 12 (ll) and (m).

CRBP Law Art. 12 (g).

For more on financial autonomy of the central bank, see Amtenbrink (2010), p. 83.

Fry (1998), pp. 512–513.

Fry (1998).

Burdekin and Laney (1988), p. 648.

Laurens et al. (2007), p. 283.

Jácome and Vásquez (2008), pp. 800–801.

It is claimed that even if the central bank is forbidden to directly finance the government and to buy general government securities in the primary market, buying general government debt in the secondary market can achieve the same economic results. Buiter (2004), p. 269.

100

Burdekin and Laney (1988), p. 649.

101

Fry (1998), pp. 512–513.

102

Const. Chile Art. 109 paras 2 and 3: “No public expenditure or loan shall be financed with direct or indirect credits of the Central Bank. However, in case of foreign war or threats of it, which will be qualified by the National Security Council, the central bank may obtain, grant or finance credits to the State and public or private entities.” See also CBCH Law Sec. 27.

103

CBCH Law Sec. 38 (5) states that “[…] with regard to international transactions, the bank shall be empowered to: […] 5. To concede loans to foreign States, foreign central banks or banking institutions, foreign or international financial entities, provided the purpose of the said loans is to assist in the fulfillment of the objectives of the Bank.”

104

However, Const. Brazil Art. 164 para 2: “The central bank may purchase and sell bonds issued by the National Treasury, for the purpose of regulating the money supply or the interest rate.”

105

LSFN Brazil Art. 12: “The Central Bank of the Republic of Brazil will operate exclusively with public and private financial institutions and is prohibited from performing banking operations of any type whatsoever with other persons governed by public or private law, with the exception of those operations expressly authorized by legislation.”

106

CRBP Law Art. 77.

107

According to CRBP Law Art. 61, the bonds that the Treasury shall provide for the bank’s capitalization are not included within these limits.

108

Const. Mexico Art. 28 para 6.

109

BM Law Art. 14.

110

Note that BM Law Art. 7 para II states: “Banco de México may perform the following activities: […] II. Grant credit to the Federal government, […].”

111

BM Law Arts. 11 and 12.

112

BM Law Art. 11.

113

BCRA Law Sec. 19 (a).

114

Information provided by the bank online: http://www.bcra.gov.ar/PoliticaMonetaria/Politica_Monetaria.asp#d.

115

BCRA Law Sec. 20.

116

BCRA Law Sec. 24: “The Bank shall charge the National Government’s account with the fee for domestic and external public debt servicing on its behalf, as well as any expenses arising therefrom. The National Government shall provide to the Bank the necessary funds for meeting those expenses, and the Bank may make advances for those expenses subject to the restrictions set forth in Section 20.”

117

Const. Colombia Art. 373: “Financing operations for the benefit of the state shall mandate the unanimous approval of the executive board unless open market operations are involved. In no case may the legislature mandate credit quotas for the benefit of the State or individuals.”

BRC Act Art. 13 (d).

Jácome (2001), p. 9.

Ibid., p. 17.

For a review of the literature on central bank losses, inflation, and independence, see Hoffmann and Löffler (2017).

122

BRC Act Art. 27 para 8 (d).

123

BRC Act Art. 27 para 8 (e).

CRBP Law Art. 92.

CRBP Law Art. 93.

CBCH Law Sec. 5.

CBCH Law Sec. 77.

BCRA Law Sec. 1 para 2.

129

BCRA Law Sec. 38.

130

LSFN Brazil Art. 8 para 2.

131

BM Law Art. 13.

132

BM Law Art. 55.

133

Neumann (1991), p. 100; see also Jácome (2001), pp. 11–12.

134

Quintyn and Taylor (2002), p. 21.

BRC Act Art. 33 (b).

BRC Act Art. 38 (a).

BRC Act Art. 36 (c).

According to CRBP Law Art. 86, the bank’s board is in charge of the “programming, formulation, approval, execution, expansion, modification and control of the institution’s budget.”

139

CRBP Law Art. 24 (ñ).

140

CRBP Law Art. 24 (u).

141

CRBP Law Art. 24 (y).

142

LSFN Brazil Art. 8.

143

RIBC Brazil Art. 12 (VI) (a).

144

RIBC Brazil Art. 14 (I) (a).

145

RIBC Brazil Art. 17 (VI).

146

BM Law Art. 46 (XI): “[…] The Board of Governors shall do the above in observance of the principle that the evolution of said budget remain consistent with that of the Federal Expenditure Budget.”

147

The BM Law Art. 49 states that it is a “committee made up of the Chairman of the National Banking Commission and two individuals appointed by the Secretary of Finance and Public Credit. The appointments of these individuals should not represent conflict of interest and they should be renowned for their experience in the labor market pertinent to public and private credit institutions as well as to the corresponding regulatory authority agencies.”

148

BM Law Art. 47 (XII).

149

CBCH Law Sec. 10.

150

CBCH Law Sec. 18 (3).

151

BCRA Law Sec. 15 (e).

152

De Haan et al. (1999), pp. 171–172.

153

Canova (2011), p. 253.

154

Quintyn and Taylor (2002), pp. 3 and 5.

Ibid., pp. 9–10.

Ibid., p. 29.

Ibid., p. 30.

Bini Smaghi (2007), p. 52.

Ibid., pp. 50–53.

Miller (2005).

Smits (1997), p.169.

Elgie (2002), p. 189.

163

Ugalde (2010), p. 260.

164

Zúñiga (2007), p. 238.

165

Ibid., p. 237.

166

Note that there is, and I would like to say surprisingly, a dispute among legal scholars whether or not an autonomous central bank should be part of the public administration or not for the case of Chile. If it is part of the public administration, control can be exercised via the executive. For a study that supports the idea that the central bank of Chile is part of the executive, see Ferrada Bórquez (1998), p. 339. For an opposite opinion see Zúñiga (2007), p. 230.

The courts have ruled that Chile’s central bank is mostly outside the public administration. See Control constitucionalidad enmienda “Ley General de Bancos”, TC Chile, Sentencia Rol No. 216, 17 July 1995.

167

Ugalde (2010), p. 260.

168

Quintyn and Taylor (2002), p. 32.

169

Santaella Quintero (2003), p. 170.

170

Bini Smaghi (2007), p. 53.

171

Frye (2004), pp. 454–455. See also North (1993). North claims in that article that the protection of property rights is critical to generate credible commitments.

172

In this regard, see Guillermo Alberto Duarte Quevedo v. Congreso de la República de Colombia, CCC, Sentencia C-827, 8 August 2001: The autonomy of the central bank has to be taken into account by the constitutional judges during the control of constitutionality and all the other judges that have to make a decision in any issue related with the central bank.

173

Quintyn and Taylor (2002), p. 31; see also Mitchell (1996), p. 252; Smits (1997), p. 169.

174

According to the law of the Bank of the Republic, “[t]he President of the Republic will perform the functions of inspection, surveillance, and control on the Banco de la República. This attribution includes the competency to supervise the observance of the Political Constitution, the laws and rules that govern the actions of the officials and employees of Banco de la República, to carry out the pertinent administrative investigations, and to apply the corresponding disciplinary regimen.” See BRC Act Art. 46 para 1.

175

Jaime Horta Díaz v. Congreso de la República de Colombia, CCC, Sentencia C-566, 17 May 2000.

176

BRC Act Art. 46.

177

Santaella Quintero (2003), p. 170.

178

The law prescribes that “[…] [t]he Auditor will be appointed by the President of the Republic and will have under his/her responsibility, among other issues, to certify the financial statements of the Banco, to perform the other functions indicated by the Code of Commerce for the Auditor, and to exercise the control on the management and the results of the Entity.” See BRC Act Art. 48.

179

The court manifested that, given the constitutional rank of the autonomy of the central bank, the “principle of hierarchy” and subordination to the main state administrator do not apply to the institution. It is part of the administration of the state, however, which is what was implied by including it in Article 1 of the Constitutional Organic Act of General Rules for Public Administration. The Constitutional Tribunal of Chile remarked that the central bank as an autonomous institution of constitutional rank is ruled only by the constitution and its organic constitutional act. See Control constitucionalidad “Ley Orgánica Constitucional de bases generales de la Administración del Estado”, TC Chile, Sentencia Rol No. 39, 2 October 1986.

In 1989, the Constitutional Tribunal decided that the bank is not part of the public administration, see Control constitucionalidad “Ley Orgánica Banco central de Chile”, Control constitucionalidad “Ley Orgánica Banco central de Chile”, TC Chile, Sentencia Rol No. 78, 20 September 1989.

In a further decision, the Chilean constitutional judges determined that any conflict among constitutionally autonomous institutions, such as the central bank vs. the general comptroller, cannot be solved by administrative authorities but by the competent court of justice. See Control constitucionalidad ley que establece normas para resolver cuestiones de competencia entre autoridades administrativas, TC Chile, Sentencia Rol No. 80, 22 September 22, 1989.

180

Control constitucionalidad enmienda “Ley General de Bancos”, TC Chile, Sentencia Rol No. 216, 17 July 1995.

181

CBCH Law Sec. 2: “The Bank shall, with regard to its duties and powers, be governed exclusively by the provisions of this act and it shall not be bound for any legal purposes, by general or special provisions, present of future, enacted for the public sector.”

182

CBCH Law Sec. 18 (2).

183

CBCH Law Sec. 18 (4).

184

CBCH Law Sec. 25 (1): “Ensuring that all the decisions, resolutions and contracts entered into by the Bank comply with all the applicable legal provisions in force. To this end, he shall acquaint himself with all such matters and shall make his observations known to the Board, for which purpose he shall attend the meetings thereof with the right to be heard.”

185

CBCH Law Sec. 26.

186

CRBP Law Art. 95 in connection with Art. 87.

187

CRBP Law Art. 96.

188

According to the law, the National Monetary Council is supposed to follow guidelines of the President in performing its functions. See LSFN Brazil Art. 4.

BCRA Law Sec. 36.

BCRA Law Sec. 39.

BCRA Law Sec. 40.

Vermuele (2013), p. 1168.

193

Neumann (1991), p. 103.

194

Jácome and Vásquez (2008), p. 799.

195

De Haan and Eijffinger (2002), p. 403; see also Hasse (1990), p. 116.

196

Lybek and Morris (2004), pp. 35–36.

197

Smits (1997), pp. 156 and 163.

198

Jácome (2001), p. 7.

199

Jácome and Vásquez (2008), p. 799.

200

CBCH Law Sec. 15.

201

CBCH Law Sec. 14.

202

The inabilities and prohibitions for the members of the board of the Central Bank of Chile are in CBCH Law Sec. 13.

203

CBCH Law Sec.15 para 1.

204

CBCH Law Sec.16 para 1.

205

CBCH Law Sec.17 para 1.

206

BM Law Art. 43.

207

BM Law Art. 44: “The Board of Governors is entitled to determine whether the conditions for removal mentioned in the previous article have been met upon request by the President of the Republic or by at least two members of the Board. The opinion will be obtained by a majority of votes from the members of the Board of Governors and after having granted him/her the right to a hearing, without his/her participation in the vote.”

208

BM Law Art. 64. In addition, according to Internal Rules of the Bank of Mexico Art. 28 II, such a “motion of reconsideration” has to be issued by the Directorate of Legal Affairs of the Bank.

209

Const. Mexico Art. 28 para 7. See also Const. Mexico Art. 110.

210

Const. Mexico Art. 110 paras 3, 4, and 5.

211

BM Law Art. 61. See also Federal Law of Administrative Liabilities of Public Officers Art. 49 [Official translation of the Ley Federal de Responsabilidades Administrativas de los Servidores Públicos, Gaceta Oficial de la Federación, 23 March 2002] [hereinafter LFRSP Mexico].

212

Const. Mexico Art. 108.

213

LFRSP Mexico Art. 1. See also LFRSP Mexico Arts. 20 and 21. The Government Secretariat controls, for example, the property of public officials and monitors the growth of officials’ wealth and questions suspicious rises. See LFRSP Mexico Arts. 41 and 42.

214

LFRSP Mexico Art. 12.

215

LFRSP Mexico Art. 8 (I), (III), (VI), (X), (XIV), and (XXIV).

216

LFRSP Mexico Art. 13.

217

Inversora Bursátil, S.A., Amparo, SCJN México, Sentencia 2a. XV, Tomo XV, March 2002, p. 430.

218

Jurisprudencia: Procurador General de la República, Acción de Inconstitucionalidad, Supreme Court of Justice of the Nation of Mexico [Suprema Corte de Justicia de la Nación de México], Sentencia P./J. 97, Tomo XX, September 2004, p. 809.

219

Banco Inbursa, S.A. and others, Amparo, SCJN México, Sentencia 2a. CCXXIV, Tomo XIV, December 2001.

220

Municipio de Guadalajara, Estado de Jalisco, Controversia Constitucional, SCJN México, Sentencia P. VIII, Tomo XXVII, February 2008, p. 1868.

221

CRBP Law Art. 9.

222

CRBP Law Art. 20.

223

Const. Peru Art. 86; see also CRBP Law Art. 20.

224

CRBP Law Art. 22. See also Const. Peru Art. 100 that describes the process of dismissal to follow in Congress.

225

The Peruvian central bank is only allowed to buy securities issued by the Treasury in the secondary market, according to CRBP Law Art. 61.

226

CRBP Law Art. 78.

227

CRBP Law Art. 79.

228

CRBP Law Art. 17 (e).

BRC Act Art. 46.

BRC Act Art. 35.

BRC Act Art. 30 (b).

Single Disciplinary Code of Colombia Art. 53 [Código Disciplinario Ùnico, Diario Oficial 44699, 4 February 2002] [hereinafter CDU].

233

CDU Art. 23. In addition, according to the Single Disciplinary Code, offenses can be very serious, serious or slight. See CDU Art. 42.

Very serious offenses are those committed either deliberately or because of negligence. These include committing a crime; performing functions in spite of knowing about the possible existence of prohibitions; engaging in areas with conflicts of interest established in the constitution and the law; disregarding the instructions and guidelines established by the President of the Republic and the entities in charge of control, inspection and surveillance; misappropriation of public resources, offering gifts in exchange for personal benefits or not denouncing other officials who do so; performing one’s functions in order to achieve different goals from those established in the law; overextending one’s functions. See CDU Art. 55 (1) through (8).

Blocking the investigation of control organs and not providing information to the Congress when required for political control; unjust enrichment; unjustified investment of public resources in a way that does not guarantee the stability and liquidity of the market; hiding or manipulating data; and unjustified abandonment of office, among others, see CDU Art. 48 (2), (3), (27), (43), and (55).

Very serious offenses are sanctioned either with economic penalties, dismissal, or a prohibition from working in the public sector for 1–20 years. See CDU Art. 56.

In contrast to very serious offenses, serious and slight offenses are not detailed in the Single Disciplinary Code. The code only mentions the non-fulfilment of duties, abuse of rights, overreach of functions and violations of prohibitions as serious and slight offenses. The punishment is either a written warning or an economic penalty. See CDU Art. 44 (4) and (5).

The state’s prosecutor office must evaluate the degree of culpability, the nature of the functions, the degree of damage to the goals of the public institution, the hierarchy of the public official, the social impact of the offense, the circumstances under which the offense took place, the reasons for the offense and whether the offense was committed by more than one person. See CDU Art. 43.

234

Cambridge Dictionaries Online, Definition of Advice.

235

Cambridge Dictionaries Online, Definition of Approval.

236

The law prescribes that one of the reasons for dismissal of the board members is to fall within some ineligibility criteria. See BCRA Law Sec. 9. The reasons why a person cannot be a board member of the Argentinean central bank are specified in BCRA Law Sec. 8.

237

Law of Ethics of the Public Function of Argentina Art. 2 [Ley de Ética de la Función Públicos, Boletín Oficial, 1 November 1999].

238

RIBC Brazil Art. 5.

239

LSFN Brazil Art. 5.

240

Siklos and Sturm (2013), p. 1.

241

Smits (1997), pp. 169–170.

242

Bernhard (1998), p. 315.

243

De Gregorio (2009), p. 7.

244

BM Law Art. 62 (I).

245

CBCH Law Sec. 67 para 1.

246

CBCH Law Sec. 44 para 2.

247

CBCH Law Sec. 53 para 1.

248

BCRA Law Sec. 42.

249

Information on the monetary program of the Central Bank of Reserve of Peru may be found at: http://www.bcrp.gob.pe/politica-monetaria.html.

250

CRBP Law Art. 74 para 1.

251

BRC Act Art. 27 (7).

252

Lastra (2015), p. 73.

253

Quintyn and Taylor (2002), p. 202; see also Jácome (2001), p. 7. See also Hasse (1990), p. 117.

254

Apel (2007), p. 41; see also Jácome (2001), pp. 7–11.

255

When operational central bank independence is specified in the legal frameworks, the law can either be very specific and leave little room for central bankers’ discretion or give more leeway to the central bank to choose measures. For instance, in case of emergency, broader discretion is regarded as positive to allow for a fast reaction. In times of financial unrest, strict legal rules in regard the operations of the central bank would require a complicated process of amendment. See Smits (1997), p. 157; see also Quintyn and Taylor (2002), pp. 14–16.

256

Buiter (2004), pp. 260–261.

257

Zúñiga (2007), p. 237.

258

Smits (1997), p. 169.

259

Valencia (1998), p. 28.

260

BCRA Law Sec. 12 para 2; see also BM Law Art. 45 para 3.

261

CBCH Law Sec. 19.

262

Const. Colombia Art. 372.

263

Kalmanovitz (2000), p. 7.

264

Jácome (2001), p. 18.

265

Massad (1989), p. 89.

266

Real Plan Law Art. 8 [Lei do Plano Real, Diário Oficial da União - Seção 1, 30 June 1995].

267

§14 and §18 des Gesetzes über die Deutsche Bundesbank von 30. Juli 1957, p. 746.

268

Central banks must act as the lender of last resort when there is a danger of systemic risk and an unexpected shock limits the capability of banking institutions to honor their liabilities. See Calomiris and Meltzer (2016), p. 1.

Banking panic can take place in a banking system in which a bank makes investments and gives credit with funds of the depositors and keeps a fraction as reserve. See Bordo (2014), p. 127. It is enough that one banking institution fails at giving bank deposits to depositors to trigger people’s mistrust on the capability of other banks to do the same. The consequence is a massive withdrawal of deposits, known as bank panic. Ibid., p. 127.

To prevent the contagion of one failing bank to others, the central banks must be ready to lend to financial institutions to assure they have sufficient reserves. See Mishkin (2007), p. 381.

Injecting central bank liquidity would prevent financial institutions from non-payment of their debt and would guarantee the operation of capital markets. The existence of the discounting facility can prevent a systemic financial panic, but its main goals in to be a reactive measure. See Schwarcz (2008), p. 225.

Even though the lender of last resort can be successful at preventing financial crisis in developing countries, it is not the same case in countries with a weak institutional setting, for instance, developing countries. Countries with a weak institution in which most debt is denominated in foreign currency that have a history of high inflation may be unable to use this mechanism to prevent financial crisis. See Mishkin (1996), pp. 36–37.

269

Quintyn and Taylor (2002), p. 32.

270

Bagehot (1873), p. 32.

271

Hogan et al. (2015), p. 333.

272

In particular, Bagehot writes: “Nothing, therefore, can be more certain than that the Bank of England has in this respect no peculiar privilege; that it is simply in the position of a Bank keeping the Banking reserve of the country; that it must in time of panic do what all other similar banks must do; that in time of panic it must advance freely and vigorously to the public out of the reserve. And with the Bank of England, as with other Banks in the same case, these advances, if they are to be made at all, should be made so as if possible, to obtain the object for which they are made. The end is to stay the panic; and the advances should, if possible, stay the panic. And for this purpose, there are two rules: First. That these loans should only be made at a very high rate of interest. This will operate as a heavy fine on unreasonable timidity and will prevent the greatest number of applications by persons who do not require it. The rate should be raised early in the panic, so that the fine may be paid early; that no one may borrow out of idle precaution without paying well for it; that the Banking reserve may be protected as far as possible. Secondly. That at this rate these advances should be made on all good banking securities, and as largely as the public ask for them. The reason is plain. The object is to stay alarm, and nothing therefore should be done to cause alarm. But the way to cause alarm is to refuse someone who has good security to offer. The news of this will spread in an instant through all the money market at a moment of terror; no one can say exactly who carries it, but in half an hour it will be carried on all sides, and will intensify the terror everywhere. No advances indeed need be made by which the Bank will ultimately lose. The amount of bad business in commercial countries is an infinitesimally small fraction of the whole business. That in a panic the bank, or banks, holding the ultimate reserve should refuse bad bills or bad securities will not make the panic really worse; the ‘unsound’ people are a feeble minority, and they are afraid even to look frightened for fear their unsoundness may be detected.” Bagehot (1873), pp. 96–97.

273

Calomiris et al. (2016), p. 48.

274

Calomiris et al. (2016), pp. 52–53; see also Bordo (2014), p. 127.

275

Calomiris and Meltzer (2016), pp. 1–2.

276

Monetary policy instruments are used to achieve primary objectives of central banks. The ECB’s main monetary policy instruments are open market operations, minimum reserve requirements and standing facilities. See the website for an explanation:

https://www.ecb.europa.eu/mopo/implement/html/index.en.html.

277

Const. Peru Art. 84 para 2; see also CRBP Law Art. 2.

CRBP Law Art. 24.

CRBP Law Art. 62.

CRBP Law Art. 66.

However, the CRBP Law Art. 52 sets forth that “the interest rates charged by the entities of the financial system for their operations be determined by free competition. Exceptionally, the Bank is empowered to fix maximum and minimum interest rates with the purpose of regulating the market.”

282

CRBP Law Arts. 53 and 54.

283

CRBP Law Art. 69.

284

CRBP Law Art. 70.

285

CRBP Law Art. 61; see also CRBP Law Art. 77.

286

CRBP Law Art. 78.

287

According to CRBP Law Art. 84, the central bank can only buy the shares “issued by international financing organizations or those that are necessary for the rehabilitation of banking or financial institutions […].”

288

CRBP Law Arts. 80, 81, 82, and 83.

289

According to Law CRBP Peru Art. 58, the financial institutions that receive central bank financing must go under the Surveillance Regime established by the General Law of Banking, Financial and Insurance Institutions.

290

CRBP Law Art. 59.

291

Monetary Program of the BCRP. See http://www.bcrp.gob.pe/about-the-bcrp/frequently-asked-questions.html.

292

Const. Colombia Art. 373.

BRC Act Art. 16.

BRC Act Art. 14.

BRC Act Art. 16 (b).

BRC Act Art. 16 (g).

BRC Act Art. 16 (d) and (e).

298

BRC Act Art. 16 (c).

299

BRC Act Art. 16 (f).

300

CCC, Judgment of 7 July 1999.

301

BRC Act Art. 2 para 2.

302

BRC Act Art.16 (i): “[…] In case of a disagreement, the State’s constitutional responsibility to see to the maintenance of the acquisitive capacity of the currency shall prevail.”

303

Specifically, the BRC Act Art. 4 states that the Bank of the Republic must perform its functions in agreement with CONPES’ macroeconomic program.

304

Departamento Nacional de Planeación: http://www.dnp.gov.co.

305

BRC Act Art. 13 (a), (c), and (d).

BRC Act Art. 15.

BRC Act Art. 12.

CBCH Law Sec. 3.

CBCH Law Sec. 18 (3).

310

According to CBCH Law Sec. 83, the Chilean central bank exercises this competence “[…] without prejudice of the legal competence of the courts of law.”

311

CBCH Law Sec. 82 para 1.

312

CBCH Law Sec. 34 (1), (2), (5), and (7).

313

CBCH Law Sec. 35 (1).

314

CBCH Law Sec. 35 (2).

315

CBCH Law Sec. 35 (4).

316

CBCH Law Sec. 35 (8).

317

For more detail about the bank’s foreign exchange policy, see CBCH Law Sec. 42.

318

CBCH Law Sec. 36 (1).

319

CBCH Law Sec. 37.

320

CBCH Law Sec. 38 (5).

321

CBCH Law Sec. 83.

322

CBCH Law Sec. 6 para 2.

323

Const. Mexico Art. 28; see also BM Law Art. 2.

324

According to the BM Law Art. 3, the Mexican central bank has six functions: First, to regulate and issue the currency as well as foreign exchange and the payment system. Second, to be the lender of last resort for banks. Third, to be the government’s fiscal agent. Fourth, to provide advice to the government. Fifth, participate in meetings of international organizations such as the International Monetary Fund. And sixth, cooperate with other institutions.

325

BM Law Art. 46.

326

BM Law Art. 3 (I); see also BM Law Art. 24.

327

BM Law Art. 26 para 2.

328

BM Law Art. 3 (II).

329

BM Law Art. 16 states that “[f]inancing granted by Banco de México to credit institutions shall be guaranteed by deposits of money and securities that said institutions have at the Central Bank. As the aforementioned financing becomes due, the Bank is entitled to charge the corresponding amounts to the accounts in which the money deposits have been recorded.”

330

According to the law, the Bank of Mexico can also provide Treasury Services. See BM Law Art. 3 (III).

331

BM Law Art. 10.

332

Note that, however, it is not unusual that a central bank issues bonds. The Bundesbank did so as well, see Sec. 5 § 20 (2) des Gesetzes über die Deutsche Bundesbank von 30. Juli 1957, p. 745.

BM Law Art. 18.

BM Law Art. 53.

BM Law Art. 21.

According to BM Law Art. 21, “[s]essions of the Commission shall be presided by the Ministry of Finance, in case of his absence by the Governor of the Bank of Mexico, and in absence of both by the secretary appointed by the head of the Ministry. Who presides the meeting will have the deciding vote in case of a tie.”

337

General Procuration of the National Treasury of Argentina [Procuracion del Tesoro de la Nación Dictamen 178/2012 – Tomo 282, 20 July 2012].

338

BCRA Law Sec. 1 in combination with BCRA Law Sec. 4.

BCRA Law Sec. 3.

BCRA Law Sec. 3.

BCRA Law Sec. 4 (c).

BCRA Law Sec. 17 (b).

343

The central bank requires public bonds and other securities as guarantee when a loan granted by the central bank to a financial institution exceeds the value of the institution’s assets. See BCRA Law Sec. 17 (c).

344

The BCRA Law Sec. 17 (f) states that the central bank shall be empowered to “[m]ake advances to financial institutions, upon the submission of collateral, assignment, pledge or any other special encumbrance of: I) receivables or other financial assets owed or guaranteed by the National Government, or II) debt securities or share certificates issued by financial trusts, whose assets consist of receivables or other financial assets owed or guaranteed by the National Government in order to promote mid-term and long-term lending for production investment. In the case of advances for production investment, the Board may accept that, out of the total guarantee required, up to TWENTY-FIVE PER CENT (25%) consist of the assets referred to in the first paragraph of (c) above, taking into account for such purposes the time frames related to such transaction.”

345

BCRA Law Sec. 43.

346

BCRA Law Sec. 46 and BCRA Law Sec. 47, for more about the powers and attribution of the Superintendence.

347

LSFN Brazil Art. 2.

348

According to LSFN Brazil Art. 9, “[i]t is the responsibility of the Central Bank of the Republic of Brazil to comply with and ensure compliance with the provisions attributed to it by current legislation and norms issued by the National Monetary Council.” See also LSFN Brazil Art. 10 for more detail on the central bank responsibilities.

349

LSFN Brazil Art. 3 (VII).

350

LSFN Brazil Art. 4 (VII).

351

LSFN Brazil Art. 10 (I) through (V).

352

LSFN Brazil Art. 10 (VI) and (VII).

353

LSFN Brazil Art. 10 (IX).

354

LSFN Brazil Art. 10 (XII); see also RIBC Brazil Art. 99 (I).

355

There is a department responsible, see RIBC Brazil Art. 96 (II) (b).

356

LSFN Brazil Art. 11 (I) and (II).

357

RIBC Brazil Art. 11 (I)

358

RIBC Brazil Art. 11 (III) (a) and (c).

359

To perform this function the Brazilian Central Bank has the Department of Banking Operations and the Payment System. To know more about the functions of this department, see RIBC Brazil Art. 96.

360

LSFN Brazil Art. 3 (VI).

361

Hasse (1990), pp. 126–127.

362

Jácome and Vásquez (2008), p. 800.

363

The law establishes that the bank’s decisions can only be objected to by the Ministry of Finance in front of a commission made up by the National Economic Comptroller, the Minister of Finance, and the Minister of Foreign Affairs. The bank can appeal the decision of this commission in front of the Appeals Court of Santiago. See CBCH Law Sec. 46.

In Colombia’s central bank statutes, a potential disagreement about the foreign exchange policies between the Bank of the Republic of Colombia and its Finance Ministry is resolved in favour of the position that is conducive to stabilizing the purchasing power of the currency. See BRC Act Art. 16 (i).

CRBP Law Art. 94.

BRC Act Art. 5.

BRC Act Art. 13 (e).

BRC Act Art. 16 (k).

BM Law Art. 47 (XIII).

369

BM Law Art. 51.

370

According to CBCH Law Sec. 80, this information may include “the general economic projections on which such information is based and the possible effects they may have on major items in the financial statements of the Bank projected for such period.”

371

CBCH Law Sec. 4.

372

According to CBCH Law Sec. 53 para 3, “[i]n order to perform the functions referred to in this Section, the Bank shall have the authority to request and obtain from the various agencies and departments of the Public Service Administration, decentralized entities, and generally the public sector, any information it may deem necessary.”

373

BCRA Law Sec. 10 (i).

BCRA Law Sec. 26.

BCRA Law Sec. 29.

BRC Act Art. 18.

CRBP Law Art. 74.

CRBP Law Art. 97.

BCRA Law Sec. 27.

CBCH Law Sec. 82.

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Title: Central Bank Statutes and Autonomy
Author: Andrea Lucia Tapia-Hoffmann
Publisher: Springer International Publishing
Book: Legal Certainty and Central Bank Autonomy in Latin American Emerging Markets
Print ISBN: 978-3-030-70985-3

Electronic ISBN: 978-3-030-70986-0

Copyright Year: 2021
DOI: https://doi.org/10.1007/978-3-030-70986-0_5

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