Banco Central de la República Argentina
Encyclopedia
The Central Bank of Argentina is the central bank
of Argentina
.
, which had been in operation since 1890. Its first President was Ernesto Bosch
, who served in that capacity from 1935 to 1945.
The Central Bank's headquarters on San Martín Street (in the heart of Buenos Aires' old financial district
, known locally as the city), was originally designed in 1872 by architects Henry Hunt and Hans Schroeder. Completed in 1876, the Italian Renaissance
-inspired building initially housed the Mortgage Bank of the Province of Buenos Aires
. The Central Bank's offices were transferred to an adjacent address upon its establishment, and were expanded to their present size by the purchase of the Mortgage Bank building in 1940, as well as by the construction of a twin building behind it.
The Central Bank was a private entity during its first decade, and British Empire
interests held a majority stake. Pursuant to the Roca–Runciman Treaty of 1933, Central Bank reserves accrued from Argentine trade surpluses with the United Kingdom
were deposited in escrow
at the Bank of England
, and this clause, which had led to over US$1 billion in inaccessible reserves (more than half the total) by 1945, prompted the Central Bank's nationalization by order of Juan Perón
in December.
Normally subordinate to the Economy Ministry
in matters of policy, the Central Bank took a more prominent role during the Latin American debt crisis
when, in April 1980, it enacted Circular 1050. This measure, enacted to shield the financial sector from the cost of receiving payments in suddenly devalued pesos, bankrupted thousands of homeowners and businesses by indexing
mortgages to the value of the US dollar
locally, which rose around fifteenfold by July 1982, when Central Bank President Domingo Cavallo
rescinded the policy. During the years of Cavallo's Convertibility Law
, which established a 1:1 fixed exchange rate
between the Argentine peso
and the United States dollar
in March 1991, the BCRA was mainly in charge of keeping foreign currency reserves
in synch with the monetary base
.
Since the repeal of the Convertibility Law in January 2002, the devaluation
and depreciation
of the peso and the end of the economic crisis
, its role has been the accumulation of reserves in order to gain a measure of control of the exchange rate. The BCRA buys dollars from the market to neutralize the large surplus of the foreign trade balance
and keep the official exchange rate
at the level desired by the government, currently around 3.80 pesos per dollar, considered internationally competitive for export
s and useful to encourage import substitution
(see Foreign trade of Argentina
).
Near the end of 2005, President
Néstor Kirchner
vowed to pay the Argentine public debt with the International Monetary Fund
in a single, anticipated disbursement. The payment was effected on 3 January 2006, employing about US$ 9.5 billion from the BCRA's reserves. This decreased the amount of reserves by one third, but did not cause adverse montary effects, save from an increased reliance on the local bond market, which requires somewhat higher interest rates.
The BCRA continues to intervene in the exchange market, usually buying dollars, though occasionally selling small amounts (for example, reacting to rumours of a possible increase of the Federal Reserve's reference rate, which caused a minor spike in the dollar's value). Its reserves reached more than US$ 28 billion in September 2006, recovering the levels prior to the IMF payment, and rose to US$ 32 billion at the close of the year. The exchange rate was maintained relatively undervalued, prompted by the BCRA's market intervention as a buyer.
In its October 2006 issue, the influential Global Finance
magazine gave Martín Redrado
, President of the Central Bank, a D grade in its survey of global central bankers. The magazine held that Redrado "missed the opportunity to act to curb inflation when the economy was expanding at its fastest ... with inflation expected to reach 12% in 2006, up from 7.7% in 2005 and 4.4% in 2004." Inflation for 2006 eventually amounted to 9.8%, helped by price controls, though the public's perception of it was higher due to the composition of the sample used to measure the index. The BCRA obtained exceptionally high returns on investment funded by its reserves, for a total of US$ 1.4 billion USD (a yearly rate of 5.7%) in 2006.
Since early 2008, the Central Bank of Argentina has held foreign exchange reserves of between US$47 and US$50 billion. The official exchange rate, which had oscillated around 3 Argentine peso
s per US dollar since early 2003, was adversely impacted by the international, 2008 financial crisis, and weakened to nearly 4 pesos per dollar by the first half of 2010.
Fallout from the 2008 financial crisis later forced the left-wing Argentine government of President Cristina Fernández de Kirchner
to seek domestic financing for growing public spending, as well as for foreign debt service obligations. The president ordered a US$6.7 billion account opened at the Central Bank for the latter purpose in December 2009, implying the use of the Central Bank's foreign exchange reserves, and drawing direct opposition from Redrado. He was dismissed by presidential decree on January 7, 2010, prior to which Economy Minister Amado Boudou
had announced that Mario Blejer
(who had expressed support for the measure) would be appointed in his stead. Following an impasse, Redrado was ultimately replaced by Mercedes Marcó del Pont
, President of the National Bank
, on February 3.
Redrado's removal triggered a vocal rebuke from opposition figures in Congress
, who, citing the need to preserve the Central Bank's nominal autarky
, expressed doubts as to the decree's legality. A court injunction blocked Kirchner's planned use of reserves for the retirement of high-interest bonds
, a move that could have provided numerous vulture fund
s (holdout
s from the 2005 debt restructuring who had resorted to the courts in a bid for higher returns on their defaulted bonds) a legal argument against the central bank's autarky, and thus make judgement liens against the central bank's overseas accounts possible.
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
of Argentina
Argentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
.
Overview
Established by six Acts of Congress enacted on May 28, 1935, the bank replaced Argentina's Currency boardCurrency board
A currency board is a monetary authority which is required to maintain a fixed exchange rate with a foreign currency. This policy objective requires the conventional objectives of a central bank to be subordinated to the exchange rate target....
, which had been in operation since 1890. Its first President was Ernesto Bosch
Ernesto Bosch
Ernesto Bosch was a prominent Argentine landowner, lawyer, and diplomat who served as the first President of the Central Bank of Argentina.-Life and times:...
, who served in that capacity from 1935 to 1945.
The Central Bank's headquarters on San Martín Street (in the heart of Buenos Aires' old financial district
San Nicolás, Buenos Aires
San Nicolás is one of the neighbourhoods of the city of Buenos Aires, Argentina, sharing most of the city and national government structure with neighboring Montserrat and home to much of Buenos Aires' financial sector...
, known locally as the city), was originally designed in 1872 by architects Henry Hunt and Hans Schroeder. Completed in 1876, the Italian Renaissance
Italian Renaissance
The Italian Renaissance began the opening phase of the Renaissance, a period of great cultural change and achievement in Europe that spanned the period from the end of the 13th century to about 1600, marking the transition between Medieval and Early Modern Europe...
-inspired building initially housed the Mortgage Bank of the Province of Buenos Aires
Banco Hipotecario
Banco Hipotecario is an important commercial bank in Argentina and the nation's premier mortgage lender.-Overview:The institution was chartered on September 24, 1886, as the Banco Hipotecario Nacional by a bill signed by President Julio Roca...
. The Central Bank's offices were transferred to an adjacent address upon its establishment, and were expanded to their present size by the purchase of the Mortgage Bank building in 1940, as well as by the construction of a twin building behind it.
The Central Bank was a private entity during its first decade, and British Empire
British Empire
The British Empire comprised the dominions, colonies, protectorates, mandates and other territories ruled or administered by the United Kingdom. It originated with the overseas colonies and trading posts established by England in the late 16th and early 17th centuries. At its height, it was the...
interests held a majority stake. Pursuant to the Roca–Runciman Treaty of 1933, Central Bank reserves accrued from Argentine trade surpluses with the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
were deposited in escrow
Escrow
An escrow is:* an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of...
at the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
, and this clause, which had led to over US$1 billion in inaccessible reserves (more than half the total) by 1945, prompted the Central Bank's nationalization by order of Juan Perón
Juan Perón
Juan Domingo Perón was an Argentine military officer, and politician. Perón was three times elected as President of Argentina though he only managed to serve one full term, after serving in several government positions, including the Secretary of Labor and the Vice Presidency...
in December.
Normally subordinate to the Economy Ministry
Minister of Economy of Argentina
The Minister of Economy is the head of the Ministry of Economy and Production of Argentina, concerned with finance and monetary matters. The position within the Government of Argentina is analogous to the finance ministers of some countries and the United States Treasury Secretary...
in matters of policy, the Central Bank took a more prominent role during the Latin American debt crisis
Latin American debt crisis
The Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
when, in April 1980, it enacted Circular 1050. This measure, enacted to shield the financial sector from the cost of receiving payments in suddenly devalued pesos, bankrupted thousands of homeowners and businesses by indexing
Indexation
Indexation is a technique to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation....
mortgages to the value of the US dollar
Historical exchange rates of Argentine currency
The following table contains the monthly historical exchange rate of the different currencies of Argentina, expressed in Argentine currency units per United States dollar...
locally, which rose around fifteenfold by July 1982, when Central Bank President Domingo Cavallo
Domingo Cavallo
Domingo Felipe "Mingo" Cavallo is an Argentine economist and politician. He has a long history of public service and is known for implementing the Convertibilidad plan, which fixed the dollar-peso exchange rate at 1:1 between 1991 and 2001, which brought the Argentine inflation rate down from over...
rescinded the policy. During the years of Cavallo's Convertibility Law
Argentine Currency Board
The Argentine Currency Board pegged the Argentine peso to the U.S. dollar between 1991 and 2002 in an attempt to eliminate hyperinflation and stimulate economic growth. While it initially met with considerable success, the board's actions ultimately failed. In contrast of what most people think,...
, which established a 1:1 fixed exchange rate
Fixed exchange rate
A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.A fixed exchange rate is usually used to...
between the Argentine peso
Argentine peso
The peso is the currency of Argentina, identified by the symbol $ preceding the amount in the same way as many countries using dollar currencies. It is subdivided into 100 centavos. Its ISO 4217 code is ARS...
and the United States dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
in March 1991, the BCRA was mainly in charge of keeping foreign currency reserves
Reserve currency
A reserve currency, or anchor currency, is a currency that is held in significant quantities by many governments and institutions as part of their foreign exchange reserves...
in synch with the monetary base
Monetary base
In economics, the monetary base is a term relating to the money supply , the amount of money in the economy...
.
Since the repeal of the Convertibility Law in January 2002, the devaluation
Devaluation
Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....
and depreciation
Depreciation (currency)
Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system. It is most often used for the unofficial increase of the exchange rate due to market forces, though sometimes it appears...
of the peso and the end of the economic crisis
Argentine economic crisis (1999-2002)
The Argentine economic crisis was a financial situation, tied to poilitical unrest, that affected Argentina's economy during the late 1990s and early 2000s...
, its role has been the accumulation of reserves in order to gain a measure of control of the exchange rate. The BCRA buys dollars from the market to neutralize the large surplus of the foreign trade balance
Balance of trade
The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports...
and keep the official exchange rate
Historical exchange rates of Argentine currency
The following table contains the monthly historical exchange rate of the different currencies of Argentina, expressed in Argentine currency units per United States dollar...
at the level desired by the government, currently around 3.80 pesos per dollar, considered internationally competitive for export
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...
s and useful to encourage import substitution
Import substitution
Import substitution industrialization or "Import-substituting Industrialization" is a trade and economic policy that advocates replacing imports with domestic production. It is based on the premise that a country should attempt to reduce its foreign dependency through the local production of...
(see Foreign trade of Argentina
Foreign trade of Argentina
-Modern history:Agriculturally productive and thinly populated, Argentina recorded trade surpluses for most of the period between 1900 and 1948, including a cumulative US$1 billion during World War I and US$1.7 billion during World War II. Record taxes on grain exports imposed by the...
).
Near the end of 2005, President
President of Argentina
The President of the Argentine Nation , usually known as the President of Argentina, is the head of state of Argentina. Under the national Constitution, the President is also the chief executive of the federal government and Commander-in-Chief of the armed forces.Through Argentine history, the...
Néstor Kirchner
Néstor Kirchner
Néstor Carlos Kirchner was an Argentine politician who served as the 54th President of Argentina from 25 May 2003 until 10 December 2007. Previously, he was Governor of Santa Cruz Province since 10 December 1991. He briefly served as Secretary General of the Union of South American Nations ...
vowed to pay the Argentine public debt with the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
in a single, anticipated disbursement. The payment was effected on 3 January 2006, employing about US$ 9.5 billion from the BCRA's reserves. This decreased the amount of reserves by one third, but did not cause adverse montary effects, save from an increased reliance on the local bond market, which requires somewhat higher interest rates.
The BCRA continues to intervene in the exchange market, usually buying dollars, though occasionally selling small amounts (for example, reacting to rumours of a possible increase of the Federal Reserve's reference rate, which caused a minor spike in the dollar's value). Its reserves reached more than US$ 28 billion in September 2006, recovering the levels prior to the IMF payment, and rose to US$ 32 billion at the close of the year. The exchange rate was maintained relatively undervalued, prompted by the BCRA's market intervention as a buyer.
In its October 2006 issue, the influential Global Finance
Global Finance (magazine)
Global Finance is an English-language monthly financial magazine.Joseph D. Giarraputo, the founder and former publisher of Venture, the magazine for entrepreneurs, in 1987 joined forces with Carl G. Burgen, Stephan Spahn, H. Allen Fernald, and Paolo Panerai to start a magazine on financial...
magazine gave Martín Redrado
Martín Redrado
Hernán Martín Pérez Redrado is an Argentine economist and policy-maker. He served as President of the Central Bank of Argentina between September 2004 and January 2010.-Early life and career:...
, President of the Central Bank, a D grade in its survey of global central bankers. The magazine held that Redrado "missed the opportunity to act to curb inflation when the economy was expanding at its fastest ... with inflation expected to reach 12% in 2006, up from 7.7% in 2005 and 4.4% in 2004." Inflation for 2006 eventually amounted to 9.8%, helped by price controls, though the public's perception of it was higher due to the composition of the sample used to measure the index. The BCRA obtained exceptionally high returns on investment funded by its reserves, for a total of US$ 1.4 billion USD (a yearly rate of 5.7%) in 2006.
Since early 2008, the Central Bank of Argentina has held foreign exchange reserves of between US$47 and US$50 billion. The official exchange rate, which had oscillated around 3 Argentine peso
Argentine peso
The peso is the currency of Argentina, identified by the symbol $ preceding the amount in the same way as many countries using dollar currencies. It is subdivided into 100 centavos. Its ISO 4217 code is ARS...
s per US dollar since early 2003, was adversely impacted by the international, 2008 financial crisis, and weakened to nearly 4 pesos per dollar by the first half of 2010.
Fallout from the 2008 financial crisis later forced the left-wing Argentine government of President Cristina Fernández de Kirchner
Cristina Fernández de Kirchner
Cristina Elisabet Fernández de Kirchner , commonly known as Cristina Fernández or Cristina Kirchner is the 55th and current President of Argentina and the widow of former President Néstor Kirchner. She is Argentina's first elected female president, and the second female president ever to serve...
to seek domestic financing for growing public spending, as well as for foreign debt service obligations. The president ordered a US$6.7 billion account opened at the Central Bank for the latter purpose in December 2009, implying the use of the Central Bank's foreign exchange reserves, and drawing direct opposition from Redrado. He was dismissed by presidential decree on January 7, 2010, prior to which Economy Minister Amado Boudou
Amado Boudou
Amado Boudou is an Argentine businessman and government policy maker who serves as Minister of the Economy since 2009. He was elected Vice President of Argentina as running mate of Cristina Fernández de Kirchner in the 2011 general election.-Early life and career:Amado Boudou was born in Mar del...
had announced that Mario Blejer
Mario Blejer
Mario Blejer is an Argentine economist and Central Bank official.-Life and times:Blejer was born in Córdoba, Argentina, in 1948. He enrolled at the Hebrew University of Jerusalem, and graduated cum laude with degrees in Economics and Jewish History in 1970, as well as with a Master's Degree in...
(who had expressed support for the measure) would be appointed in his stead. Following an impasse, Redrado was ultimately replaced by Mercedes Marcó del Pont
Mercedes Marcó del Pont
Mercedes Marcó del Pont is an Argentine economist and lawmaker appointed President of the Central Bank of Argentina on February 3, 2010.-Life and times:...
, President of the National Bank
Banco de la Nación Argentina
Banco de la Nación Argentina is a state-owned bank in Argentina, and the largest in the country's banking sector.-Overview:The bank was founded on October 18, 1891, by President Carlos Pellegrini by way of stabilizing the nation's finances following the Panic of 1890; its first director was...
, on February 3.
Redrado's removal triggered a vocal rebuke from opposition figures in Congress
Argentine National Congress
The Congress of the Argentine Nation is the legislative branch of the government of Argentina. Its composition is bicameral, constituted by a 72-seat Senate and a 257-seat Chamber of Deputies....
, who, citing the need to preserve the Central Bank's nominal autarky
Autarky
Autarky is the quality of being self-sufficient. Usually the term is applied to political states or their economic policies. Autarky exists whenever an entity can survive or continue its activities without external assistance. Autarky is not necessarily economic. For example, a military autarky...
, expressed doubts as to the decree's legality. A court injunction blocked Kirchner's planned use of reserves for the retirement of high-interest bonds
Government bond
A government bond is a bond issued by a national government denominated in the country's own currency. Bonds are debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country...
, a move that could have provided numerous vulture fund
Vulture fund
A vulture fund is a private equity or hedge fund that invests in debt issued by an entity that is considered to be very weak or dying, or whose debt is in imminent default. The name is a metaphor comparing these investors to vultures patiently circling, waiting to pick over the remains of a rapidly...
s (holdout
Holdout problem
In finance, a holdout problem occurs when a bond issuer is in default or nears default, and launches an exchange offer in an attempt to restructure debt held by existing bond holders...
s from the 2005 debt restructuring who had resorted to the courts in a bid for higher returns on their defaulted bonds) a legal argument against the central bank's autarky, and thus make judgement liens against the central bank's overseas accounts possible.
See also
- List of presidents of the Central Bank of Argentina
- Argentine pesoArgentine pesoThe peso is the currency of Argentina, identified by the symbol $ preceding the amount in the same way as many countries using dollar currencies. It is subdivided into 100 centavos. Its ISO 4217 code is ARS...
- Banco AlasBanco AlasBanco Alas Cooperativo Limitado was a commercial bank based in Buenos Aires, Argentina.Inaugurated in 1979, Banco Alas became one of the first to offer ATM services in the country. The bank prospered initially, growing to include 76 branches, and over 1,200 employees...
- Economy of ArgentinaEconomy of ArgentinaThis article provides an overview of the Economic history of Argentina.-Emergence into the world economy:Prior to the 1880s, Argentina was a relatively isolated backwater, dependent on the wool, leather and hide industry for both the greater part of its foreign exchange and the generation of...