Because at that time, the prevailing view was that the State should actively intervene to encourage economic development. From this perspective—before fully understanding the costs and risks of such strategies—central banks were expected to direct savings toward strategic sectors through loans granted on preferential terms, aiming to accelerate economic growth.
What changes did the 1991 Constitution introduce regarding the role of Banco de la República?
The Constitution eliminated the Bank’s role as a development bank and strengthened its function as a monetary authority. It established that the Bank cannot grant credit quotas or guarantees to private parties; that it may only finance the State with the unanimous approval of the Board of Directors; and that its primary objective is to preserve the purchasing power of the currency.
As a result, development banking activities were transferred to the Executive branch, which increased transparency in the system. Development funds were assigned to specialized institutions such as Finagro, Banco Agrario, and Bancóldex, while Banco de la República was able to concentrate on controlling inflation under the inflation-targeting framework.
Related Blog BanRep: The Role of Banco de la República as a development bank
According to the prevailing view in Latin America of the mid-20th century—which saw active state intervention as essential for promoting development—central banks were assigned a significant role as development banks. On this basis, they were expected to direct part of domestic savings under favorable conditions to key productive sectors to boost economic growth...
