The dangerous bill that challenges the stability of the Central Bank

Congressman Flores Ancachi, from Acción Popular, has presented a bill that has raised concerns regarding its impact on the independence of the Central Reserve Bank (BCR) and the economic stability of the country. This project, seemingly harmless at first glance, proposes to authorize the BCR to buy gold in the local market, but the fine print reveals a potential danger that cannot be overlooked. While the BCR is already empowered to buy foreign currencies, gold, and silver according to its organic law, Flores Ancachi's project goes further by requiring it to maintain a minimum of 25 tons of gold in its reserves. Currently, the BCR holds around 17 tons of gold, so complying with this requirement would involve acquiring about 250,000 more ounces, with an estimated cost of over US$500 million. This acquisition would force the Bank to issue about S/2,000 million, which could have significant long-term consequences. The concern lies in the fact that this project could set a dangerous precedent, with the possibility of future increases in gold holding requirements, leading to a continuous issuance of soles to meet these demands. This spiral of monetary issuance could trigger an inflationary scenario, as the currency supply would surpass demand and the currency would lose value, regardless of being backed by gold. Furthermore, the approval of this project could open the door to future initiatives pressuring the BCR to continue buying gold, jeopardizing its autonomy and its ability to maintain monetary stability. It is crucial to remember that currency issuance, whether backed by assets like gold or not, must be subject to a balance between supply and demand to avoid imbalances that could affect the economy. The potential beneficiaries of this law, having a secure buyer for their gold production, could push for expanding these purchases in the future, worsening the situation. Ultimately, if Flores Ancachi's project were to be approved, the BCR runs the risk of losing control over its monetary policy, which would have negative consequences for the country's economic stability. In this situation, it is essential that measures be taken to protect the independence of the Central Bank and ensure that its primary function of safeguarding monetary stability is not compromised. If necessary, the Government should consider bringing this case to the Constitutional Court to assess its legality and prevent potential harmful consequences for the Peruvian economy. In summary, the bill presented by Congressman Flores Ancachi represents a potential threat to the independence and stability of the Central Reserve Bank. It is crucial to thoroughly analyze its implications and take the necessary steps to protect the country's monetary policy and prevent potential inflationary risks in the future.