HISTORY OF

CENTRAL BANK

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• Until 1880, the financial and economic disorder
was total, distant currencies and even foreign
currency issued by the National, Provincial and
private banks were circulating.

• The lack of a governing entity and external

fluctuations made it very difficult to sustain
convertibility, especially for the productive
sector due to the fluctuation in prices of
primary products.
• In 1867, the exchange office dependent on the
bank of the province of Buenos Aires was
established.

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• In 1872, the National Bank was created, which
operates as a financial agent and began the
unification of the banking and monetary system.
• In 1876, due to the great exodus of reserves,
inconvertibility was decreed.
• In 1881 Julio A. Roca fixed the bimonetary
standard by law, in 1883 it became convertible
only with gold, in 1885 convertibility was
suspended for a decade.
• With the financial crisis of 1890, the National
Bank closed its doors and was replaced by
Banco Nación in 1891.
• In 1899, the Currency Board was created,
creating a new monetary order since it issued
state securities and commercial documents
against gold.
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• It establishes strict control of the gold that enters
and leaves the country, affecting the monetary
system due to lack of elasticity.
• The Currency Board resisted the crisis of 1907
but in 1914 the flight of gold began and the
convertibility system had to be suspended,
canceling it in 1929.
• Central Banks in the world.
• Bank of England 1694
• Iskbank of Sweden 1868
• Bank of France 1800
• Bank of Holland 1814
• The Federal Reserve 1914
• The functions of all these entities in the
world are:
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• 1.-Issuance of banknotes and their partial
monopoly.
• 2.-Financial agents of the State
• 3.-Custodian of the gold and currencies of the
National Government
• 4.-Custodian of cash reserves of commercial banks.
• 5.- Granting credit through rediscounting to
commercial banks and other financial institutions,
the role of lender of last resort, settlement of
compensation balances between banks and credit
control “in accordance with economic needs and
with a view to carry out the monetary policy adopted
by the State.
• 6.-Maintenance of the stability of the monetary
standard, which entails the control of monetary
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 circulation.
• In the National Constitution of 1853, in its article 64,
paragraph 5, the desire to create a body in charge of
issuing banknotes is expressed, leaving the door
open to the creation of a Central Bank.
• Since 1910, different projects have been sent for the
creation of a bank that would serve as the Central
Bank that would issue and regulate the monetary
system, but only after 1920 at the International
Conference in Brussels was the framework
conducive to the creation of these institutions
created.
• Before the crisis of 1929, voices were already being
raised asking for the participation of the State in the
organization and regulation of the financial system.
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• With the crisis of 1929 and its consequences, the
states abandoned free trade, with the advent of
Keynesianism, which postulated State intervention
as necessary.
• The “New Deal” implemented by Roosevelt in the
United States.
• Protectionism will also become widespread with
strong increases in tariffs and bilateral and imperial
preference agreements such as the Ottawa
Conference (1932), which sought the preservation of
the internal market.
• This would be one of the main causes of the decline
in trade worldwide.
• Within this new role of the State, the emergence of
entities dedicated to the regulation and ordering of

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 monetary and financial systems stands out. Thus, central
banks appear on the scene as an instrument to carry out
this task, and Argentina would not be the exception,
having had its own Central Bank since 1935.
• In Argentina…
• There is a fall in the terms of trade, due to problems in
international trade, the trade balance becomes deficient.
• It is about settling the creation of the Central Bank
between different projects
• Uriburu Project : does not bring about a clean-up of the
financial system, it proposes using treasury funds and
future profits to pay off the floating debt.
Niemeyer Project : It proposed creating a Central
Reserve Bank and carrying out a reform of the banking
system.
It would bring together the functions of the Currency

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 Board, the Rediscount Commission and the Exchange
Control Commission, issue banknotes, maintain bank
reserve reserves, be the Government's financial agent,
attend to the rediscount operation and make advances to
the Government only under a series of strict restrictions.
• The deposit banks would be shareholders and
depositors of the Central Bank, which should enjoy great
independence from the Government. In addition to the
Report, the draft laws for the creation of the Central
Bank, reform of the banking system and Organization
were prepared.

• The Central Bank would be a private entity in the form of

a public limited company, whose capital would be
subscribed by individuals and banks, with the
participation of the National Government as a
shareholder being prohibited. In the same way, any
person who depended “directly or indirectly on the
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 federal, provincial or municipal government” was denied
membership on the board. In this directory, places were
assigned to a representative of a farmer and a rancher,
in addition to those stipulated for the banks.
• Prebisch Project: I adapt Otto Niemeyer's project to the
reality of our country.
• In his message it is clarified that the Banco de la Nación
made loans to the banks through rediscounting and
financed the State, on the other hand there was the
Currency Fund that issued money, and the Treasury of
the Nation with its Currency Control office. Changes
controlling the movement of currencies.
• By creating the Central Bank, it would unify all these
functions into one, allowing Banco Nación to resume its
commercial activity, reserves were created at 25% of the
banknotes in circulation.
• In the project, an anti-cyclical fund is created from the

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 Immobilizer Institute appealing to the revaluation of gold.
• The official project stipulates a mixed entity where the
State had half of the shares, although without a vote in
the Assemblies, and the power to appoint the President
of the Bank, a position with broad executive functions,
and that of the Bank's Trustee, with oversight powers. .
• On January 18, 1935, the Executive's bills on banks and
currency were sent to Congress, accompanied by the
aforementioned Introductory Message.
• Creation of the Central Bank of the Argentine Republic
• Already sanctioned, the projects of the Executive Branch
were promulgated on March 28, 1935 in the form of six
laws: 12,155: Law creating the Central Bank of the
Argentine Republic.
• · 12,156: Banking Law.
• · 12,157: Creation of the Banking Investment Mobilizing

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 Institute.
• · 12,158: Modifications to the organic law of the Banco de
la Nación Argentina.
• · 12,159: Modifications to the National Mortgage Bank
regime
• · 12,160: Law of Organization of the Central Bank of the
Argentine Republic.
• This last law provided for the designation of an Organizing
Commission, chaired by the Minister of Finance and in charge
of bringing together the dispersed elements of the existing
system while establishing the bases for the constitution of the
Central Bank and the Mobilizing Institute.
• The financing of the regime that structured these laws was
made possible by the revaluation of the gold existing in the
Currency Board.

• The Central Bank of the Argentine Republic opened its doors

in June 1935. Regarding its performance in its early years,

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 Rapoport points out that “under the management and
guidance of Raúl Prebisch, a markedly anti-cyclical policy was
followed until the outbreak of the war.”

• The improvement in economic conditions after the peak of the

crisis until 1938 gave rise to an upward period, which was
moderated by a contractionary monetary policy.

• Regarding the relationship between the Central Bank

and the Executive Branch,

• Prebisch will affirm that the type of organization of this

Bank and its Board of Directors is due to the desire that
its internal regime as well as its operations be, as far as
possible, removed from political influences, but this does
not mean in any way that the Central Bank can follow a
monetary policy independent of the guidance of the

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 National Government.
• The existence of a Central Bank with its own monetary
policy independent of the general orientation, or of the
final decision made by the men to whose responsibility
the Government has been entrusted, is not conceived.

Experience shows that when a Central Bank has wanted

to follow a policy opposite to that of the Government, the
thread has always broken at the thinnest, and the
thinnest is always the Central Bank.
• How are central bank funds used
today?

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• Note from Alcadio Oñas diary
Clarion

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USE OF INTERNATIONAL RESERVES
□ Transferred profits
• 106,5
■ Temporary advances Use of reserves

• Some financial
cushions look
64,0

considerably
less robust than
in the recent 33

past.
• One is the freely
available 2007 2008 2009
2010 2011
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 reserves of the Central Bank, intensively
squeezed in recent years to pay private
creditors.
• Plus, outside this system, those that cover
obligations with international
organizations.
• According to recent calculations by former
officials of the entity, next year there would
be around US$4 billion on hand. Other former
BCRAs reduce the quota to 1,000 million
and, in the extreme, even to an amount close
to zero.
• The 4,000 million in the best case scenario
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 seem like a considerable figure. But it is not
so, contrasted with a couple of data from the
same scenario.
• In 2011, there are 7,504 million allocated
to obligations with private creditors. That is
the first data. The second: in 2012,
maturities in dollars amount to 8,000
million.
• The conclusion is too ripe.
• There will be fewer dollars and about 4
billion will be missing to close next
year's external gap.
• Among the devices to inflate freely available
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 reserves, counting short-term loans from the
Bank of Basel as assets, a common resource
when you want to show a higher stock.
• However, it seems unlikely that the State will
be able to avoid taking a look at the credit
market to plug the hole. And, when that
moment arrives, the discourse of debt relief
will be disguised.
It is possible that the gateway to the international
circuit consists of accelerating an agreement with
the Paris Club, for the almost 9,000 million that
remain in default. Of course, depending on the
payment terms, this route can lead to an

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 increase in financing needs .
• There is also the alternative of appealing to the
reserves that the banks have in the Central Bank
for deposits in dollars. Even though the cash is
much larger, US$2,000 million would be a figure
considered reasonable so as not to sow doubts
about the Government's solvency or create
expectations that are difficult to control.
• It would not be a bad idea for the entities to get an
interesting profit from the reserves. Of course, it will
imply indebtedness of the State since it will be
necessary to issue a title, also in foreign currency, in
exchange for dollars.
• The other buffer is represented by the profits generated
by exchange rate variations and the bonds it has in its
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 portfolio. They are, in truth, accounting profits,
fictional , although the Government transforms them
into hard currency.
• The account would yield about $7.5 billion in 2012.
• Almost three times less than in 2011.
• What remains outside of any discussion is the
way in which the Central's funds have been
squeezed: since 2006, they jumped from
$49,442 million to $186,000 million. Translated
at the current exchange rate, that amounts to
more than $44 billion today.
• The BCRA is the main source of financing for the
Government. Although the ANSeS also weighs
heavily, which between 2007 and 2011 will have
contributed the equivalent of US$26 billion .
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