BCRA Reform: Broad Support for Emission Limits and Some Reservations on the Single Mandate

Following the announcement and submission to Congress of the reform project of the Central Bank's Organic Charter, economists and consultants agree, at least on the concept, that the president of the BCRA must have independence from the current government to prevent poor budgetary practices from affecting the value of the currency.{#p-1785507726651-35142}

The so-called "independence" is more related to the concept of not issuing money (or transferring profits) to the Executive Power to finance fiscal deficits, rather than the president of the entity remaining aloof from macroeconomic policy.{#p-1785507726651-7396}

Reactions following Milei's announcement to change the BCRA.
Gemini IA

The uniqueness of Javier Milei's government's proposal is the idea of reducing the BCRA's mandate to solely defending the value of the peso, as there are not many cases in the world of this type. Examples of central banks with "multiple functions" would be those of the Federal Reserve of the USA, the Bank of England, or that of Israel. Only Colombia and Peru have a single function.{#p-1785507726651-34054}

In this regard, Aldo Abram, executive director of the Liberty and Progress Foundation, stated that "the announced aspects are aligned with the core objectives of the proposal we developed from the Foundation." "The definition of a single objective for the Central Bank ---preserving the stability of the currency's value--- constitutes one of the fundamental pillars of our initiative," he indicated. Abram added that "it is positive that the Central Bank is prohibited from financing the national government." Regarding the idea that to remove the president of the entity, two-thirds of the Senate must agree, he said that "it seems interesting."{#p-1785507726651-6986}

Martín Redrado: "We must eliminate the issuance to finance the Treasury" {#p-1785508247779-93505}

For his part, former BCRA president Martín Redrado said that "Argentina needs a Central Bank Organic Charter that guarantees its independence so that we have price stability, exchange rate predictability, and financial predictability."{#p-1785507726652-92926}

It is worth remembering that Redrado was removed by Cristina Fernández on January 22, 2010, amid a conflict over the use of international reserves. The Executive Power demanded that he transfer dollars, and the then-official refused.{#p-1785507726652-69474}

Redrado also proposes to "eliminate monetary issuance to finance the Treasury via Temporary Advances, accounting profits, and the possibility of using the Central Bank's dollars." "Moreover, indirect financing through the integration of bank reserves with public securities must be eliminated. The gradual reduction of integration with National Treasury bonds must go hand in hand with the identical reduction of reserves, converging to international standards and increasing the lending capacity of the private sector," he indicated.{#p-1785507726652-36772}

Support and Nuances {#p-1785508283259-61786}

Meanwhile, Luciano Laspina, former deputy for the PRO and now Executive Director of the Center for Implementation of Public Policies for Equity and Growth (CIPPEC), stated that "Argentina has a very sad history of fiscal deficits financed by debt and ultimately by monetary issuance." "We have removed thirteen zeros from the currency because of that process," he asserted. The professional added that "countries that managed to engrave in stone the prohibition of financing the treasury and having an independent central bank defeated inflation.

On his part, consultant Iván Carrino opined that the proposed reform "is going in the right direction." "The 2012 reform was very harmful, endorsing and legitimizing what was already being done in practice, and going against the world by imposing five different and often incompatible objectives on the BCRA for an organization that only has one tool," he assured.

"The new Charter gives a main objective to the BCRA and imposes serious limits on the monetization of the fiscal deficit, something that all central banks in the region that lowered inflation have included in their respective organic charters. So I see it positively. It is an important institutional signal that also seeks to improve inflation expectations for the future," he assured.

Meanwhile, economist Roberto Cachanosky warned that "announcing the independence of the Central Bank with the president of the Central Bank beside him is not convincing.**

Few cases of single function

Just as Argentina in the 90s was a unique case in the world for applying a currency board to curb inflation, something that had been discontinued in the 30s, it would now stand out again as one of the few countries in the world to give its central bank the sole function of defending the currency. Only Peru and Colombia have that characteristic.

The Center for Argentine Political Economy (CEPA) recounted some organic charters of the main central banks of capitalist countries:

Federal Reserve of the United States: "The Board of Governors of the Federal Reserve System and the Federal Open Market Committee will maintain the long-term growth of monetary and credit aggregates in line with the long-term potential of the economy to increase production, in order to effectively promote the goals of maximum employment, stable prices, and moderate long-term interest rates.**" Federal Reserve, Act.Sec 2A.

Bank of Israel: "1. Primary objective --- Section 3(a)(1): Maintain price stability as its central objective. 2. Secondary objective --- Section 3(a)(2): Support other objectives of the Government's economic policy, especially growth, employment, and the reduction of social gaps, provided that, in the Committee's opinion, this support does not harm the achievement of Price Stability over time; for these purposes, 'Price Stability over time' means a situation in which the Committee, based on the monetary policy it has established, expects the inflation rate to be within the range of price stability determined according to Subsection (b) within a period not exceeding two years. 3. Tertiary objective: Support the stability of the financial system." Law 5770 of 2010.

Brazil: "The fundamental objective of the Central Bank of Brazil is to ensure price stability. Without prejudice to its fundamental objective, the Central Bank of Brazil also seeks to ensure the stability and efficiency of the financial system, smooth fluctuations in the level of economic activity, and promote full employment." Law 179/2021.{#p-1785507726652-48100}

Chile: "The Bank shall aim to ensure the stability of the currency and the normal functioning of internal and external payments." Law 18.840 Art.3{#p-1785507726652-67977}

Bank of England: "Primary objective: Maintain price stability. Secondary objective (subordinate to the first): Support the economic policy of Her Majesty's government, including its growth and employment objectives, but only subject to having fulfilled price stability." Section 11 Act 1998.{#p-1785507726652-35267}

European Central Bank System: "Primary objective: The primary objective of the European System of Central Banks (ESCB) is to maintain price stability. Secondary objective (subordinate): Without prejudice to the objective of price stability, the ESCB will support the general economic policies of the Union in order to contribute to the achievement of the Union's objectives set out in Article 3 of the Treaty on European Union. This includes objectives such as "full employment," "balanced economic growth," and "a high level of protection and improvement of the quality of the environment." Article 127 of the Treaty on the Functioning of the European Union (TFEU), within the "Lisbon Treaty."

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