The BCRA and the dynamite

In principle, there would be no relationship between the Central Bank and the explosive invented by Alfred Nobel, the same one who later instituted the Nobel Peace Prize as symbolic compensation for the warlike use that was given to his invention. But everything changed when an economist, turned into a politician with chances of reaching the presidency of the country, said that he was going to blow up the BCRA.
The Central Bank of the Argentine Republic was created the same year that our beloved Rafaela was founded. Until then, different coins minted by different banks in different provinces circulated throughout the country. That year, 1881, the national currency linked to the gold standard was established, which would govern until 1929, when it was abandoned by almost everyone.
The purpose of the Central Bank, that is, the reason why it was created and that we can see in the third article of its charter, is to promote monetary stability, financial stability, employment and economic development. With inflation averaging 50% per year for several periods, stagnant employment, permanent exchange rate depreciation and the country’s GDP that has not grown for a decade, we can say that it does not fulfill any of its purposes. Due to the above, the option of closing it, without having to blow it up, probably becomes relevant.
What is definitive is that it cannot continue like this. The most moderate and most used option in the developed world is a Central Bank independent of the political power in power. In fact, our BCRA is an autarchic entity that could be independent, for this there must be political will not to use the tools it has for populism, or more elegantly put, to favor the political caste, a fashionable term today.
If the Central were independent and would stop financing the whims of the rulers with emissions, it would force them to control spending and adjust it to existing resources. In this way, both the fiscal deficit and the monetary issue would fall, and with this the inflation that so distorts economic activity. It would also end financing to the State through advances to the Treasury, reducing the debt and forcing budgets to balance. In addition, it can analyze on its own the economic phenomena that occur and act both independently and in conjunction with the Ministry of Economy, without being subject to the economic management of the day, or to other State instances.
But if, due to prevailing political conditions, the agency’s independence is not possible, there remains the possibility of “dynamiting” it. This option to close it definitively is somewhat more complex and implies a change in the entire financial system as we know it. This variable will bring with it the transformation of banks as we know them, restructuring the financial system into a Simons Bank.
In the case of the establishment of a Simons Banking System, the entities are divided into two, transactional banks and lending banks. The former receive only sight deposits, which must match 100%, that is, they cannot lend. They only receive deposits in current and savings accounts and are used to make payments, collections and transactions, receiving commissions for the operations. On the other hand, there will be entities that receive term deposits and that lend based on those resources and others that they obtain in the capital market. Let us remember that there is no BCRA that acts as a bank of banks or lender of last resort, so loans must be made with great care, both in the possibility that the beneficiary defaults, and in the ability to return the deposits received.
We understand that of the uses of dynamite foreseen by Nobel, this option, at least in the form of a threat, would bring great benefits to the economically punished and oppressed Argentine people.

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@GuilleBriggiler

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The BCRA and the dynamite