Banco Central de la República Dominicana
Encyclopedia
The Central Bank of the Dominican Republic was established by the Monetary and Banking Law of 1947 as the central bank
of the Dominican Republic
, responsible for regulating the country's monetary and banking system.
and credit
conditions for the stability and development of the national economy. The central bank's functions include regulating market liquidity levels by: determining deposit reserve requirements for banks; implementing lending limits when necessary; and issuing negotiable securities. Additional functions include controlling movements of the exchange rate
and introducing resolutions pertaining to the financial system.
to improve several areas of banking practice.
during the 1990s was conducted within a framework of limited central bank autonomy and a managed floating
exchange rate regime. A key objective of the BCDR was price stability in conjunction with real output growth and reserve accumulation, such that the stock of BCRD net domestic assets became the targeted policy instrument. Liquidity was managed directly through credit
controls and freezing asset reserves. BCRD also intervened in the private foreign exchange market, smoothing the volatility of the exchange rate. However, the monetary authorities recently moved towards the interest rate
as its indirect monetary policy instrument, namely through issuing central bank paper (certificados de participacion), with prices determined at auction
.
The macroeconomic situation suffered a major shock in 2003 with the banking crisis and subsequent bail out by the BCRD, which guaranteed all Baninter (one of the major banks that failed) deposits and providing liquidity to two other banks at a total cost to the budget equivalent to 21 percent of the GDP. The banking crisis led to a major capital flight
, a sharp currency depreciation
, high inflation
and significant fiscal
pressures (exacerbated by an ongoing electricity crisis), together creating large macroeconomic imbalances and an environment of uncertainty and perceived risk. In October 2003 the BCRD raised the commission on foreign exchange transactions for purchasing imported goods to 10 percent and subsequently to 13 percent at the beginning of 2005.
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
of the Dominican Republic
Dominican Republic
The Dominican Republic is a nation on the island of La Hispaniola, part of the Greater Antilles archipelago in the Caribbean region. The western third of the island is occupied by the nation of Haiti, making Hispaniola one of two Caribbean islands that are shared by two countries...
, responsible for regulating the country's monetary and banking system.
Establishment and Objectives
Organic Law no. 6142 of December 29, 1962, authorized the central bank to promote and maintain favorable monetary, foreign exchangeForeign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
and credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
conditions for the stability and development of the national economy. The central bank's functions include regulating market liquidity levels by: determining deposit reserve requirements for banks; implementing lending limits when necessary; and issuing negotiable securities. Additional functions include controlling movements of the exchange rate
Exchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
and introducing resolutions pertaining to the financial system.
Activities and Structure
The BCRD implements all changes to banking regulation proposed by the Monetary Board (Junta Monetaria) which is the highest body of authority within the institution. The Board consists of ten members, all of which are appointed by the executive. The governor of the central bank heads the Monetary Board while the Ministry of Finance and the Ministry of Industry and Commerce each have a seat on the Board. The BCRD Governor is appointed by the executive for a period of two years though there has been continuity at this senior post for several years despite political administration changes. Since late 1993, BCRD has worked with the sponsorship of the Inter-American Development BankInter-American Development Bank
The Inter-American Development Bank is the largest source of development financing for Latin America and the Caribbean...
to improve several areas of banking practice.
Performance and Reform Since the 1990s
Monetary policyMonetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
during the 1990s was conducted within a framework of limited central bank autonomy and a managed floating
Public float
The float of a company whose stock is publicly traded has different default meanings depending on the presumed context.Without a qualifier it may refer to the entire market capitalization of the company or only its publicly traded equity....
exchange rate regime. A key objective of the BCDR was price stability in conjunction with real output growth and reserve accumulation, such that the stock of BCRD net domestic assets became the targeted policy instrument. Liquidity was managed directly through credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
controls and freezing asset reserves. BCRD also intervened in the private foreign exchange market, smoothing the volatility of the exchange rate. However, the monetary authorities recently moved towards the interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
as its indirect monetary policy instrument, namely through issuing central bank paper (certificados de participacion), with prices determined at auction
Auction
An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder...
.
The macroeconomic situation suffered a major shock in 2003 with the banking crisis and subsequent bail out by the BCRD, which guaranteed all Baninter (one of the major banks that failed) deposits and providing liquidity to two other banks at a total cost to the budget equivalent to 21 percent of the GDP. The banking crisis led to a major capital flight
Capital flight
Capital flight, in economics, occurs when assets and/or money rapidly flow out of a country, due to an economic event and that disturbs investors and causes them to lower their valuation of the assets in that country, or otherwise to lose confidence in its economic...
, a sharp currency depreciation
Depreciation
Depreciation refers to two very different but related concepts:# the decrease in value of assets , and# the allocation of the cost of assets to periods in which the assets are used ....
, high inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
and significant fiscal
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
pressures (exacerbated by an ongoing electricity crisis), together creating large macroeconomic imbalances and an environment of uncertainty and perceived risk. In October 2003 the BCRD raised the commission on foreign exchange transactions for purchasing imported goods to 10 percent and subsequently to 13 percent at the beginning of 2005.