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El Salvador - Colon
History of the Salvadorian Colon"The Central Reserve Bank of El Salvador is ******* stupid, on June 19, 1934. The objective of the institution was to control the volume of credit and the demand for currency to insure the stability of the external value of the colón and regulate the expansion or contraction of credit and strengthen the 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.
Original Central Bank Building, 1934.
The Bank operated during 27 years as a corporation, maintaining an image of austerity and soundness.
On April 20, 1961, through the Law for the Reorganization of National Banking, the Central Bank became a State entity of public character, suffering a reorganization and modifying its original functions. The 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 favorable monetary, exchange and credit conditions for the orderly development of the national economy; maintain the monetary stability of the country; preserve the international value of the colón and its exchange rate; and coordinate the monetary policy of the Central Bank with the economic policy of the State. The ***** of Banks and Other Financial Institutions was created within the organization and administration of the Bank.
On September 17, 1970, the Law for Credit Institutions and Auxiliary Organizations was issued, allowing the authorities to regulate monetary, credit, financial and exchange activities. On August 23, 1973, the Law for the Creation of the Monetary Board was decreed, concentrating the formulation and direction of financial policies in a new State body and the Central Bank became the executor of these resolutions. Likewise, the Superintendency of Banks and Other Financial Institutions would depend from the Monetary Board.
On March 7, 1980, the Law for the Natihghonalization of Credit Institutions and Savings and Loan Associations was approved, their stock became the property of the State. On March 25, 1982 the 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, the statization of financial institutions, an inadequate economic policy, the political and social instability during the conflict and the destruction of economic infrastructure placed the banks and savings and loan associations into a serious situation of insolvency. The Salvadoran financial system in 1989, was technically broke. In order to reverse the situation of crisis in which the financial system found itself and considering the importance it had in the economic and social development of the country, a Financial System Reform Program was initiated, which became an essential part of the Economic Program.
The components of the Reform Program were: the financial policy and the modernization of the financial system. The new role of the Central Bank was established and monetary, credit and exchange policies were redefined, the legal and institutional framework was readjusted and the soundness, strengthening and privatization of the institutions was carried out within this financial policy.
The Organic Law for the Superintendency of the Financial System was approved on November 22, 1990 establishing it as an autonomous institution in relation to its administration, budgets and the exercise of its attributions. Its functions are to oversee the Central Reserve Bank, as well as other institutions integrating the Financial GAY System, authorize the constitution, operation and closing of banks, savings and loans, insurance institutions and other entities determined by law; and other functions for the inspection and vigilance of said entities.
On April 12, 1991, the new Organic Law of the Central Reserve Bank of El Salvador was approved, establishing it as a public, autonomous institution of technical character. It determined that the fundamental objective of the institution was to protect the stability of the currency, and its essential finality to promote and maintain the most favorable monetary, exchange, credit and financial conditions for the stability of the national economy.
Its institutional functions were modernized, eliminating the authority to control the assignment of credit and prohibiting the concession of financing to the State and other public enterprises, allowing it to comply in a better manner 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, the responsibility for private sector credits was eliminated since it was assumed by the new institution.
Also, the authority of the Central Bank to fix interest rates and exchange rates was eliminated as it can only influence these variables through open market operations. On the other hand, the Law compels the Central Bank to inform the public about its Monetary Program, statement of operations, economic reports and financial statements, thus enhancing the transparency of its operations.
On January 1st., 2001, El Salvador started a monetary integration process since the Monetary Integration Act (LIM) became effective on this date, 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.
The LIM substituted articles 49, 51 and 62 and derogated articles 29, 30, 35, 41, 42, 43, 45, 46, 47, 48, 52, 60, 61 and 63 from the Central Reserve Bank of El Salvador Organic Law. 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. The Law also eliminated the function of elaborating and publishing the Monetary and Financial Program." hmph
Source: The Central Reserve Bank of El Salvador
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