The Banco de la Republica, Colombia’s central bank, is one of the most important economic institutions in the country.
It is responsible for promoting the stability and effective working of the Colombian economy by supervising Colombia’s banking activity and managing the country’s money supply.
The bank says its key functions are:
Functioning as banker to Colombia’s banks and government
The Banco de la Republica acts as a last-resort lender to protect the economy from damage caused by government or financial sector bankruptcy.
Formulating Colombia’s interest rate policy
Inflation means that the prices of goods and services within the economy increase over time, due to higher demand or higher production costs. To maintain a stable economy, this needs to be controlled. Interest rates are used across the globe as a tool to control inflation, as they can influence whether people choose to spend or save and, thereby, the level of demand in the economy.
Controlling printing of the Colombian peso
As the only institution that can print Colombian pesos, the Bank of the Republic has a monopoly on how many pesos are in circulation.
Regulating peso exchange rate
The bank buys and sells pesos and other currencies in large quantities so as to influence levels of demand for them on the foreign exchange market. This acts as a shock-absorber to maintain stability and competitiveness of the peso. For example, in 2014, the bank bought US dollars to weaken the peso in comparison to the US dollar.
These functions are invested in the Bank by the Colombian government, meaning its decisions should be made independent of political influence and purely in the best interests of the Colombian economy.
The current governor of the Banco de la Republica is economist and business administrator, Jose Dario Uribe.
Almost a century of central banking
Banco de la Republica was set up in 1923, as a measure to help Colombia pull itself out of the financial crisis that followed the First World War. Its creation followed the failure of at least three previous attempts to establish a central bank.
The law that invested in the bank the powers to carry out its functions also created the Board of Directors, whose main role is to analyze the factors affecting the economy to determine the optimal level for the central bank’s interest rate.
Central bank rate hikes generally make it more expensive to borrow and this usually means people are less likely to spend freely. This consequently limits the rate of inflation, the increase in price of goods and services over time.
