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Fotografía de la fachada de la biblioteca Luis Alfaro Durán

Central Reserve Bank of El Salvador was founded as a private company, on June 19, 1934. The objective of the institution was to control the volume of credit and demand for currency to insure stability of external value of the Colon and to regulate expansion or contraction of credit and to strengthen liquidity of commercial banks, through a central banking reserve fund under its control. In addition, it was empowered to issue currency in an exclusive manner. The Bank operated during 27 years as a private company, maintaining an image of austerity and soundness. 

On April 20, 1961, through Law for the Reorganization of National Banking, Central Bank became a State owned entity of public character, suffering a reorganization and modifying its original functions. Organic Law for the Central Reserve Bank of El Salvador was approved on December 15, 1961, establishing therein the following objectives: to promote and maintain the most favourable monetary, exchange and credit conditions for orderly development of the national economy; to maintain the monetary stability of the country; to preserve international value of the Colon and its exchange rate; and to coordinate monetary policy of Central Bank with economic policy of the State.  Superintendency of Banks and Other Financial Institutions was created within the organization and administration of the Bank.

On September 17, 1970, Law for Credit Institutions and Auxiliary Organizations was issued, allowing authorities to regulate monetary, credit, financial and exchange activities. On August 23, 1973, Law for the Creation of the Monetary Board was decreed, concentrating formulation and direction of financial policies in a new State body and the Central Bank became only executor of resolutions. Likewise, Superintendency of Banks and Other Financial Institutions would depend from the Monetary Board.

On March 7, 1980, Law for the Nationalization of Credit Institutions and Savings and Loan Associations was approved; Stocks became property of the State. On March 25, 1982 Monetary Regime Law was issued.  It was considered the consolidation of the State's administration of monetary, exchange and credit measures, through the Monetary Board. However, during the decade of the 80's, state owned financial institutions, inadequate economic policy, political and social instability during the conflict and destruction of economic infrastructure placed the banks and savings and loan associations into a serious insolvency. Salvadoran financial system, in 1989, was technically broke.  To reverse the crisis of financial system and considering the importance it had for economic and social development of the country, a Financial System Reform Program was initiated, becoming an essential part of the Economic Program.

Components of the Reform Program were financial policy and modernization of  financial system.  It was assigned a new role to the Central Bank and monetary, credit and exchange policies were redefined; legal and institutional framework was readjusted; and soundness, strengthening and privatization of institutions was carried out within this financial policy.

Fundamental Law for the Superintendency of the Financial System was approved on November 22, 1990, establishing it as autonomous institution regarding to its administration, budgets and exercise of its attributions. Its functions are to oversee Central Reserve Bank, as well as other financial system institutions; to  authorize the constitution, operation and closing of banks, savings and loans, insurance institutions and other entities determined by law; and to realize other functions for inspection and vigilance of said entities.

Fotografía de vista panorámica del Edificio del BCR sobre la Alameda Juan Pablo IIOn April 12, 1991, new Fundamental Law of the Central Reserve Bank of El Salvador was approved, establishing it as a public, autonomous institution of technical character. It stated that fundamental objective of the institution was to protect currency stability, and its essential finality was to promote and maintain most favourable monetary, exchange, credit and financial conditions for national economy stability.

 

Its institutional functions were modernized, eliminating control of the assignment of credit and prohibiting the concession of financing to the State and other public enterprises.  It allows the Central Bank to comply in a better way its fundamental purpose of maintaining monetary stability.

With the approval of the Law for the Creation of the Multisectorial Investment Bank, on April 21, 1994, responsibility for private sector credits was eliminated since it was assumed by the new institution.



Imagen de la portada de las Leyes, Reglamenteos e Instructivos del Sistema Financiero

Also, faculty to fix interest rates and exchange rates was eliminated to Central Bank, as it can only influence these variables through open market operations. On the other hand,  Law compels Central Bank to inform people about its Monetary Program, statement of operations, economic reports and financial statements, enhancing transparency of its operations.

On January 1st., 2001, El Salvador started a monetary integration process since the Monetary Integration Act  (LIM) became effective; it was approved by the Legislative Assembly on November 30th., 2000.

This Law established a fixed exchange rate between the Colon and the  US Dollar, as of ¢8.75 Colones per US$1.00, and granted legal tender to the US Dollar, allowing its use as a mean of payment for liabilities, within the national territory of El Salvador.  It also permitted contracting monetary liabilities in any other foreign legal tender currency and allowed the US Dollar to become the unit of account of El Salvador’s financial system.

LIM substituted some articles of  the Fundamental Law of the Central Reserve Bank of El Salvador.   These amendments removed the sole right of issuing money to the Central Bank, as well as the function of coordinating the monetary policy with the rest of economic policies of the Government of El Salvador.  Law also eliminated the function of elaborating and publishing  the Monetary and Financial Program.Fotografía mostrando el lobby del Edificio del BCR ubicado sobre la alamenda Juan Pablo II

Up to this date, the monetary integration process have developed successfully, contributing to consolidate macroeconomic stability in the country and to strengthen financial system development in El Salvador.   Within its benefits are credits at low interest rates and longer terms; elimination of exchanging risk; protecting savings, salary and purchasing power values, with no devaluations.

Since LIM got in force, Central Reserve Bank of El Salvador changed some of its functions and now, it focuses to deal with the following strategic areas for country’s economy:

  • Regulation and monitoring of financial system
  • International Reserves Administration
  • Payments System and financial services
  • Financial agent of the State
  • Exporters services
  • Statistics, Projections and Economic and Financial Studies


 

Last Updated on Wednesday, 27 June 2012 16:46
 
Banco Central de Reserva de El Salvador
República de El Salvador, C. A
Alameda Juan Pablo II, entre 15 y 17 Av. Norte. Apartado Postal (106), San Salvador, El Salvador.
Tels. (503) 2281-8000; Fax. (503) 2281-8011.    E-mail: info@bcr.gob.sv