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About this book

This book provides a comparative analysis of the legal frameworks of six Latin American central banks to determine whether there is legal certainty regarding central bank autonomy. Based on this, it ascertains whether the way in which legal institutions are designed – specifically those that rule the autonomy of the central bank – provides reasons to believe that central banks can keep inflation at bay even if governments face fiscal problems or pursue contradictory objectives. The analysis covers three key areas: a constitutional analysis, a detailed study of the central bank statutes and a study of a number of underexplored threats to central bank autonomy. After defining and identifying different types of legal certainty and linking them to the credibility of government promises, the author goes on to examine the grounds that the law provides for confidence that central banks operate independently of political influence. The second part of the book focuses on a granular analysis of the legal design of the central banks’ objectives and autonomy. Lastly, the third part features two case studies that represent little-known and unusual institutional threats to legal certainty relating to central bank autonomy, such as the interventions by the Constitutional Court of Colombia in the autonomy of the Colombian central bank, and the interventions of the Argentinean executive and legislative branches in the autonomy of Argentina’s central bank through stabilization plans introduced via emergency laws and decrees.In sum, the book suggests that there are serious doubts about the ability of Latin American central banks to maintain price stability over time. Although central banks were granted a degree of autonomy, authorities in Latin American countries are able to affect central bank decisions. Most importantly, a lack of clarity, inconsistencies, or generous exceptions in the law provide ways for authorities to influence central banks even without bending or disregarding the rules.

Table of Contents

Frontmatter

Chapter 1. Introduction

Abstract
Monetary instability has been endemic throughout the twentieth century in Latin America. Inflation, the fall of domestic purchasing power, was particularly high in the 1970s and 1980s, when central banks engaged in expansionary monetary policies to finance government expenditures. In addition, currency crashes caused financial crises and inflationary spurs, specifically in the 1990s. Because the threat of inflation increased contractual risks and put a drag on investment and economic growth, episodes of monetary instability motivated the sovereigns, with the power to create and regulate money, to reforms of central bank laws. Price stability has gradually become the raison d’etre of monetary policy. An increasing number of central banks in Latin America have been granted autonomy in the law to allow central banks to pursue monetary policy independent from political intervention.
Andrea Lucia Tapia-Hoffmann

Chapter 2. Legal Certainty

Abstract
This chapter serves to define and elaborate on different notions of legal certainty. Explaining legal certainty presupposes an understanding of the objectives and importance of the rule of law. The first chapter, therefore, briefly reviews what the rule of law means and how a legal system under the rule of law is organized. Legal certainty is an important element of it (Sect. 2.2). In outlining different notions of legal certainty (Sect. 2.3) and elaborating on the relationship between the legal certainty, the rule of law and other principles of law (Sect. 2.4) the chapter refers to peculiarities regarding the Latin American legal systems.
Andrea Lucia Tapia-Hoffmann

Chapter 3. Legal Certainty and Legal Commitment Mechanisms

Abstract
The dictionary defines the word commitment as “the engagement or obligation that restricts freedom of action” and “the state or quality of being dedicated to a cause, activity, etc.” Credibility is “the quality to be trusted and believed in.” Therefore, a credible commitment is a promise that can be assumed to be fulfilled. Legal certainty is a precondition for credible commitments. To shed light on the relationship between legal certainty and the credibility of government commitments, this chapter reviews the function of legal rules as institutions in providing incentives for governments to act according to their legal mandate and explains what kind of legal mechanisms are more suitable to incorporate credible commitments in terms of the degree of legal certainty that they provide.
Andrea Lucia Tapia-Hoffmann

Chapter 4. Central Bank Objectives and Autonomy

Abstract
The central bank’s objective and its autonomy work in tandem. Whereas the legal objective reflects the public interest that the monetary institution is supposed to protect, the autonomy is the legal device that prevents the deviation from the legal objective. Because the main reason for giving central banks a degree of autonomy in Latin America was to bring down inflation, this chapter starts by outlining the importance of monetary stability from a legal perspective to provide a rationale for monetary stability as a central bank objective. The chapter explains why governments face commitment problems when engaging in non-inflationary policies and why installing a central bank as an autonomous institution in charge of monetary stability may help to resolve the commitment problems. The following analysis of objectives and implications of the rank of autonomy in the legal frameworks of six Latin American central banks is intended to serve as the basis for a detail-oriented legal study of institutional aspects of the central banks.
Andrea Lucia Tapia-Hoffmann

Chapter 5. Central Bank Statutes and Autonomy

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.
Andrea Lucia Tapia-Hoffmann

Chapter 6. The Constitutional Court of Colombia Versus Central Bank Autonomy

Abstract
This chapter deals with the interventions of the Constitutional Court of Colombia in decisions of the Colombian central bank during the 1990s. Constitutional judges, in their eagerness to harmonize every action of the state organs with the social rule of law, have interfered with the Bank of the Republic’s autonomy, operations and legal objectives, causing uncertainty about the independence and role of the institution. By intervening with the operations of the central bank, the Court has produced contradictory judgments. On the one hand, the Court has ratified the autonomy of the central bank by putting clear limits to legislative and executive intervention—which are more commonly considered a threat to central bank independence. On the other hand, the Court has modified the objective of the central bank, limiting its autonomy to achieve goals in line with the social rule of law.
Andrea Lucia Tapia-Hoffmann

Chapter 7. Economic Emergency and Central Bank Autonomy in Argentina

Abstract
Argentina’s executive and legislative branches have repeatedly introduced stabilization plans via emergency regulation, e.g., the Austral Plan of 1985, or modified the central bank charter. Elaborating on the use and legitimization of emergency decrees and laws affecting Argentina’s central bank/convertibility law since the 1980s, this chapter suggests that the frequent use of emergency decrees and laws has undermined legal certainty concerning the central bank's autonomy and objectives in Argentina.
Andrea Lucia Tapia-Hoffmann

Chapter 8. Towards Monetary Stability in Latin America

Abstract
Drawing on previous chapters, this final chapter compiles the findings and provides proposals to improve legal certainty concerning the autonomy of the six Latin American central banks analyzed.
Andrea Lucia Tapia-Hoffmann
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