Ernesto Bosch

The regulatory agency for the financial system was born as a result of the 1935 banking and monetary reform which put in place major changes by the enactment of six Acts of Congress on May 28, 1935 under the numbers 12155 through 12160.

That day marked the formal extinction of the Currency Board, which had been operative since 1899, and the birth of the Central Bank of Argentina (BCRA) as it is still organized today.

In turn, the Executive Decrees that established the formation of a Central Bank, as well as the termination of the Currency Board, the Government Credit Agency, and the Self-Regulatory Board are dated May 31, 1935.

On that same day, the Currency Board and the Bank of the Argentine Nation transferred to the newly organized BCRA all the funds from the appraisal and fair pricing of gold. And also the same date is considered the anniversary of Argentina's Central Bank, even though the institution became operative as such some days later, on June 06, 1935.

The initiative to create a Central Bank system -in times of Agustín P. Justo as President of Argentina, and Federico Pinedo acting as Economy Minister- was based on an expert opinion issued in 1933 by a mission headed by British specialist Otto Niemeyer. Mr. Prebisch developed that idea to use it as the basis for the principles suited to the national economic reality, in his words, "a monetary and financial policy that responds to authentic national interests".

This renowned economist -whose scheme was based on the need to overcome the serious monetary and banking situation created by the world crisis in the 1930s- then endured the plight of the 1938 recession, counteracting it by implementing a completely new policy against cyclical movements, and the 1939 recession, associated to the outbreak of World War II.

Thanks to Mr. Prebisch, who embodied the new Keynesian ideas in Argentina, the BCRA embarked on calculating Annual National Income for the first time. Along these lines, a training program for BCRA experts began in Harvard.

The infant Central Bank, pursuant to its 1935 Law, was geared "to promote the liquidity and smooth operation of credit", and it prohibited banks to execute transactions that might endanger such liquidity.

After World War II, a period of violent structural changes was unleashed that lasted until the 1990s, where four successive Presidents of Argentina would hold office in one year, and six Economy Ministers would serve within a two-year period. It is worth mentioning that Ernesto Bosch was the single BCRA Governor to strike a 10-year record in such capacity, and that the same applies to Economy Minister Ramón Cereijo, who managed to complete his six-year term of office.

After 1970, an inflationary process speeded up, and the Argentine currency lost 13 zeros between the turn of the century and 1991(*). The radical remedy applied to face hyperinflation was the Convertibility Law, the single tool available for this purpose.

Almost 11 years later, this model ceased to exist with the implementation of the 2002 Economic Emergency Law. Today, as in Mr. Prebisch's times, we are back in a foundational moment for Argentina and its monetary policy (*).

(*) Source: La realidad financiera del Banco Central, by Homero Braessas y Alejandra Naughton, Buenos Aires, 1997

Heading: The BCRA mission is to preserve the value of currency.