After several attempts, in June of 1880, the Government created the „National Bank” to act as its banker and to promote public credit. Its role as banker consisted of providing the Government with services of allocation of public or Treasury funds, credit extension, collaboration in obtaining both internal and external loans as well as the management of Government Securities. Furthermore, the „National Bank” was responsible for issuing the national currency (Colombian peso). However, in 1894, the Congress liquidated the National Bank due to registered excesses in the currency issue. Years later, the Central Bank of Colombia was created, which functioned between 1905 and 1909, until it too was liquidated for the same reasons.

The First World War brought in its wake severe economic and financial difficulties for Colombia that were not resolved with the advent of peace. During the first two decades of the 20th Century the prospects of Colombian banking institutions were not promising due to the existing monetary disorder: currency was issued without control and bank reserves were dispersed. An additional aggravation to this situation was the lack of a formal governmental system of guarantees and backing for the banks.

This situation precipitated the economic crisis of the years 1922 and 1923, which clearly showed the scarcity of money in circulation. Therefore, the need to provide currency and credit with solidity and stability by means of a solid and consistent central bank became imperative.

In March of 1923, President Pedro Nel Ospina commissioned a group of experts, headed by Prof. Edwin Walter Kemmerer. This commission later became known as the Kemmerer Commission. The first action of the commission was to study Colombia’s economic reality by means of contact and discussion with business associations, agricultural societies and regional officials.

Subsequently, the Commission began to analyze the relevant parts of the laws passed the previous year, as a basis for the elaboration of the organic statutes of the entity that was about to be created. For this purpose it was not necessary to replace existing standards and norms of other economies or to pursue total innovation.

The Central Bank of Colombia was established as the Central Bank of Colombia on the 25th of July 1923 by means of Law 25. The Bank was organized as an anonymous society with a starting capital of 10 million in gold, of which the Government provided 50% and foreign and national commercial banks as well as some private individuals contributed the remainder. This entity was exclusively entrusted with the faculty of issuing Colombian legal tender, administrating the country’s international reserves, acting as banker to the Government and serving as a last resort moneylender.

The Bank’s Board of Directors, composed of 10 members consisting of representatives both from the private and public sectors, was entrusted by Law 25 with the exercise of regulatory and monetary controls with strict adherence to the parameters of financial orthodoxy. The Board was also given the responsibility of establishing the discount rate and intervening to control interest rates.

The Central Bank of Colombia plays a fundamental part in the economic and institutional organization of the country. With the passage of time, this institution has undergone important changes, and has adapted itself to serve an economy in a permanent process of growth and development.

A central bank is the institution that issues and administrates legal currency and exercises the function of banker of banks. Furthermore, it controls the country’s monetary system (currency), credit system (interest rates) and foreign exchange system (foreign exchange rates). Its principal functions include:

1. To act as State bank;
2. To control the issue of legal tender;
3. To receive allocations of credit and provide loans to commercial banks and the Government;
4. To manage and direct the country’s monetary (inflation controls) and financial policy;
5. To carry out currency transfers with other countries of the world, amongst other functions;

In 1922, the Colombian Congress passed Law 30 thereby authorizing the Government to promote and create a bank with the functions of currency issue, draft, deposit and discount — with the immediate goal of rectifying the precarious monetary and credit situation that the country had suffered since its inception as a Republic. Due to the need for access to external credit it was necessary to commission a delegation of foreign experts to provide the country with advice as regards the organization of its monetary and banking structure.

In 1998 the Bank adopted a new corporate image and modified its logo by re-adopting the traditional design of Mariana of Liberty, the original emblem at the time of the institution’s creation in 1923. The Mariana is an allegorical symbol of liberty inspired by the French Revolution, that according to some represents the people and according to others, represents the Republic. Colombian admiration for the French Revolution is registered in our history at the time when The Predecessor, Antonio Nariño, translated and published „The Rights of Man”.

A few years after achieving independence, a curious adaptation of the Mariana’s figure, adorned with native feathers, was found on some of the first coins produced out by the patriots. After 1837, the Mariana recovers its traditional aspect and becomes a frequently used element in banknote and currency design. At the beginning of the 20th century, when the Third French Republic was consolidated and republican style was observed in our architecture, it did not come as a surprise that the founders chose the name of Central Bank of Colombia to baptize the new central bank created in Colombia. Neither is it surprising that the Mariana symbol was adopted in the Bank’s emblem.

The functions of Central Bank of Colombia:

1. Issue of Legal Tender — the currency-issuing attribute, characteristic of the Nation’s monetary sovereignty, is exclusive to the Central Bank of Colombia and can not be delegated. This attribute has materialized by means of various contracts, with the authorization of Congress.
   
   
2. Credit Functions of the Central Bank of Colombia — the „Law 31” establishes precise conditions: it categorically prohibits the Issuer (of legal currency) from offering credits and securities to private individuals and entities. Exception is made for temporary assistance credits to credit institutions with liquidity problems, in fulfillment of the Bank’s role as lender of last resort.
   
   As regards the tendering of credit by the Central Bank of Colombia to the Government, although not prohibited by the new regime, very rigorous conditions exist for the concession of credit. In effect, this sort of credit should be limited to instances of dire necessity and should be conceded only with unanimous approval of the Board of Directors.
   
   Nevertheless, it is important to point out that the Constitution left the possibility open for the Bank to continue acquiring Government bonds on the secondary market. In this way, it is not the Bank which directly finances the Government but rather individuals who have purchased these bonds.
   
   
3. Banker of banks —as with any central bank, the Central Bank of Colombia plays the role of banker of banks. On one hand, it is the depository of the money allocated in fulfillment of the bank reserve requirements, which serve to regulate the credit-issuing capacity of the banking system. This reserve, maintained under the tightest security, backs the liquidity of the banking system. On the other hand, as was mentioned previously, the Central Bank of Colombia acts as last resort lender to credit institutions in the event of a temporary lack of liquidity caused by the massive withdrawal of deposits.
   
   However, in addition, the Central Bank of Colombia has made important contributions to the payment system and infrastructure of Colombia’s financial sector and to achieving the legal mandate of ensuring the normal functioning of internal and external payments. Of these, the most relevant to the objectives of contributing to the efficiency of productive apparatus, stability of the financial system and channeling of monetary policy indicators in money markets, is the money transfer service and the register of operations between financial intermediaries, of the values market amongst others, by electronic means in real time by means of the high denomination value payments system DA (“Deposit account system”).
   
   Furthermore, the Bank manages the “interbank compensation chamber for cheques”, the interbank compensation chamber for low value electronic payments, the Central Values Deposit (DCV) de-materialized public debt deeds are kept and managed, and the electronic negotiation system (ENS) with public debt deeds.
   
   
4. Foreign Exchange Functions — the „Law 31” also attributes the Bank with the task of formulating exchange policy within the framework of the criteria and objectives laid down by the Congress of the Republic aiming at the regulation of foreign trade and the international exchange rate regime.
   
   The external situation of the country directly affects monetary conditions. Therefore, the Bank should participate in the drafting and definition of policy regarding foreign exchange rate and the flow of international capital. Thus, one of the Bank’s several functions is to organize and regulate the foreign exchange market and intervene in the market with the purpose of defending the exchange rate, in order to regulate the conditions of the country’s borrowing abroad.
   
   
5. Administration of International Reserves — it is the Central Bank of Colombia’s responsibility to administer the country’s international reserves, including management, investment, safekeeping and disposal of reserve assets. Investment takes place principally by following the criteria of security and liquidity with the aim of facilitating national payments abroad.
   
   The Bank, first of all, looks for security and stability in its investment and endeavors to keep liquid reserves in order to ensure timely payments to other countries.
   
   International reserves are internationally accepted means of payment generated by, amongst others:
   • The difference between income stemming from exports or sales abroad and expenditures relating to imports or purchases carried out in the rest of the world;
   • The difference between income proceeding from foreign loans or investment and expenditures in capital payments, interest and retention of profits;
   • The difference between deposits remitted by Colombians residing abroad and those remitted to them;
   
   
   The purpose of international reserves is to enable the Government and private individuals and businesses to make payments abroad.
   
   International reserves consist of freely convertible currencies, that is currencies that can legally be exchanged for other widely accepted currencies in the international market, either for gold or for Special Deposit Rights (SDR’s).
   
   
6. Government Banker, Fiscal Agent and Trustee — the Central Bank of Colombia fulfills these duties by receiving funds in deposit from the Nation and public entities under the conditions established by the Board of Directors. Furthermore, the Central Bank of Colombia may act as fiscal agent in the negotiation of external and internal credits upon Government request and if such action is compatible with the Bank’s objectives.
   
   
7. Promoter of Scientific, Social and Cultural Development — the professional expertise and operating structure of the Bank has enabled it to support simultaneously the scientific, social and cultural development of the country through the creation of foundations designed to select, finance and otherwise stimulate research in the fields of sciences, technology, anthropology, archeology, education, health and humanities. Moreover, the Bank has participated in efforts to rescue and preserve cultural heritage as well as in efforts to stimulate continued development through the creation and administration of libraries and specialized museums throughout the country. The Gold Museum (Museo de Oro) and the Luis Angel Arango Library, part of the Bank, are nationally and internationally recognized for the work they carry out.
   
   
8. The Board of Directors’ Report to the Congress — an innovation of considerable interest introduced by Law 31 was the obligation of the Board of Directors of the Bank to provide a Report to Congress, from its Chief Executive Officer. This Report explains the execution of the monetary, exchange and credit policies as well as containing general guidelines for deciding these policies, an evaluation of results achieved in the past period and a presentation of the objectives and goals proposed for the subsequent period and in the medium term.
   
   Additionally, the Report explains the administration policy and composition of the international reserves and the Bank’s current financial situation and prospects. Furthermore Congress can request additional reports from the Bank, and if during the course of the year a substantive change takes place with regard to the policies mentioned in the Report, the Board of Directors is required to present an additional report.
   
   These public reports, presented by the Bank to legislative authorities, undoubtedly represent a democratic advance that fosters a more transparent handling of those areas of policy delegated to the Issuer.
   
   The Central Bank of Colombia underwent a marked reform in the restructuring of its functions. The number of departments and branches was cut throughout the country, some were consolidated and others were eliminated and personnel was reduced in order to adapt the institution to the country’s new circumstances.

Useful links

Currency of Colombia:

Colombian peso

List of Central Banks:

Central Banks

Official website of Central Bank of Colombia:

www.banrep.gov.co

Colombia Investment:

www.investincolombia.com.co

Ministry of Finance and Public Credit of Colombia:

www.minhacienda.gov.co