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Interpretación Fachada Mural Banco de Guatemala
Interpretación Fachada Mural Banco de Guatemala

Historical Review



1. The foundation of the Central Bank: the Orellana reform

The legal and institutional origins of the current central banking system in Guatemala date back to the period of the monetary and financial reform of 1924-1926. Then, the Central Bank of Guatemala was created as a private issuing, turning and discounting establishment and the state participated as a shareholder. This reform culminated during the mandate of General José María Orellana (1921-1926), and was led in its final stage by a team under the leadership of Carlos O. Zachrisson (then Minister of Finance), who worked on the basis of technical studies prepared by Professor EdwinWalter Kemmerer, of Princeton University.1

The origin of this reform is linked to the serious monetary and financial imbalances caused by the previous monetary regime, based on the legal existence of an oligopoly of issuing banks regulated by the Government of Manuel Estrada Cabrera, which generated gigantic government debt to these banks. In 1919, the Estrada Cabrera government itself invited Professor Kemmerer to study the country's monetary conditions and make the recommendations that the case warranted to undertake the reform. Kemmerer recommended, among other measures, establishing a central bank that would be a government fiscal agent and that would have the exclusive right to issue banknotes.


This attempt at reform was thwarted by a series of political and economic events (such as the overthrow of presidents Estrada Cabrera and Manuel Herrera). It was not until 1924 that President Orellana again invited Professor Kemmerer to visit the country and propose a plan for financial reform. Prior to this, in 1923, Orellana had passed a decree establishing a "Regulatory Fund" to stabilize exchange rates, which would become the seed of the Central Bank of Guatemala. In November 1924, the Monetary Law of the Republic of Guatemala was enacted, giving life to the new monetary unit, the Quetzal, under the classical gold standard regime. In 1925, the government published the basis for what the central bank should be and requested proposals for drafting the corresponding law from the different sectors involved. Finally, by governmental agreement dated June 30, 1926, the Central Bank of Guatemala was founded, which crowned the work of the economic reform of the Orellana government.

The reforms undertaken put an end to disorderly monetary issuance, created real support for the national currency, stabilized its parity and established order in the country's banking and financial flows. However, as you can guess, the reform process itself was extremely complicated, as evidenced by the Orellanista Chronicle of the events themselves (the administration of General José María Orellana and the economic settlement of Guatemala):

"All of these results were achieved but only after a bloody struggle against all sorts of obstacles. As it is easy to assume, all the vested interests, added to the small interests of politics, were put at stake, at first to discredit the proposed plan and immediately to put obstacles and hurdles to its development. It is easy to consider what this struggle meant in an environment of pessimism and where the voice of passions, interests and small politics, always find an easy echo. There was a vigorous fight, in action, in the Cabinet, in the press..."


2. The second era: monetary and banking reform, 1946

The Great Depression (1929-1933) severely affected the Guatemalan economy, and put the Central Bank and its monetary policy based on the classic gold standard to a difficult test. Since this pattern did not accommodate a countercyclical monetary policy, it became necessary to promote the monetary and banking reform of 1944-1946, by which the Banco de Guatemala was created as heir to the former Central Bank of Guatemala. This reform was completed during the revolutionary government of Dr. Juan José Arévalo, and was conducted under the leadership of Dr. Manuel Noriega Morales (Minister of Economy and, later, first president of the Banco de Guatemala), whose work team was advised by Dr. Robert Triffin2 and David L. Grove, economists from the United States Federal Reserve System3.


The reform, prompted by the airs of renewal from the 1944 October Revolution, consisted of granting the Banco de Guatemala the status of a State Bank and the power to carry out a monetary, foreign exchange rate and credit policy aimed at creating conditions conducive to the orderly growth of the national economy. For this purpose, the Central Bank was provided with instruments that gave it greater control over the money supply (interest rates and discounts management and the power to establish legal reserves), as well as a share in development credit (designation of credit quotas in certain sectoral activities), according to the latter function to the prevailing thesis of basing development on the import substitution model. As one of the great legacies of the October Revolution, the Organic Law of the Banco de Guatemala (Decree 215 of the Congress of the Republic, on December 11, 1945) conferred to it the quality of an autonomous entity endowed with broad powers in the use of policy instruments to counter the economic cyclical swings.


In conjunction with the Monetary Law (Decree 203) and the Banking Law (Decree 315 of the Congress of the Republic), the Organic Law of the Banco de Guatemala was a harmonious body of financial legislation that gave the country a legal framework at the height of the times paired to the most modern theories and financial techniques, such as was the case in many countries of Latin America around those times which also adopted legal regimes, similar to the Guatemalan, inspired by the new trends coming from Bretton Woods.


The process of designing and drafting them was arduous and was not without hurdles. In fact, since the dawn of the Revolution, the Revolutionary Council undertook the task of reforming the financial system, by issuing a Monetary Law at the beginning of 1945, and a Central Bank Law; the life of these two laws was very short, given that the technical team led by Dr. Noriega Morales considered that the same had not been prepared with due care or containing the precepts appropriate that, were finally incorporated in the new laws drafted with the advice of international experts, which, with various changes over time, regulated the system of central banking for more than fifty-five years.


The approval of the Organic Law of the Banco de Guatemala by the Congress of the Republic involved a special effort on the part of the executive authorities. It is known that Dr. Noriega Morales was afraid that the law would be unduly modified during his legislative discussion, of which he made President Arévalo aware. He would later narrate the events that happened then:

"(Dr. Noriega Morales) went to my office and said to me: "President, here is the bill of the Organic Law for the Banco de Guatemala, but I am afraid." And what are you afraid of? "In Congress there are economists, there are congressmen who believe that they know a lot of finance and they are going to take this project and they are going to corrupt it; we have worked a year and two months on this project and it seems unfair to us that in a discussion in Congress the project is going to get battered and "I will do what I can," I told him, "for your peace of mind," and the next day I invited the president of Congress, a talented lawyer, Julio Bonilla González; (I said)" this is happening to me and, although I am forbidden by law to intervene in congressional cases, I will break that commitment, today I will commit the criminal act (sic) of pressing: I need Congress to pass the Organic Law of the Banco de Guatemala without changing a comma." Of the sixty congressmen, fifty-nine were Arevalists, and it was a time when we were on honeymoon, Congress and the Executive, working together and all for Guatemala. Bonilla González went to his Congress, spoke with the commissions of the case and everyone said "if the thing is so delicate, then it will be", and passed the Organic Law of the Banco de Guatemala without discussion in the Congress of the Republic. President Arévalo, well-renowned for being a Democrat, acted dictatorially..."


The basic structure of Guatemalan financial legislation issued in 1945 and 1946 allowed the orderly functioning of the system in its first forty years of existence, sometimes despite and sometimes by virtue of legislative changes that were introduced on several occasions . At the end of the 1980s, however, it became clear that regional economic crises, such as the liberalization of banking and international financial markets, advances in electronics, computing and telecommunications, the internationalization of the stock and capital markets, as well as increased interdependence on the international market, went beyond the conception of such markets in the 1940s.


In response to this process of obsolescence of financial legislation, in 1993 the Monetary Board approved the program for the modernization of the National Financial System. This program is proposed to update the regulatory framework, seeking reforms conducive to macroeconomic stability and to facilitate greater financial market openness, as well as a greater role for market signals as financial flow assigners; all this through promoting regulatory and legal changes, which were not intended to completely overturn the laws in force but, rather, its adaptation to the new times.


In fact, the program had begun in 1989 with the adoption by the Monetary Board of the deregulation of interest rates for regulated financial intermediaries and the elimination of the regulated exchange rate. These measures were considered as a possibility within the Organic Law of the Banco de Guatemala, but they were considered as exceptional situations with respect to the general rule.

The modernization program included a number of measures taken by both the Monetary Board and the Congress of the Republic and the Ministries of State. There were more than fifty resolutions issued by the Monetary Board in the areas of monetary policy, the exchange rate regime, credit policy, the liberalization and diversification of banking products and services, prudential regulations and the functioning of financial supervision. For its part, the most prominent provisions in the legislative field were:

  • Legislative Agreement No. 18-93, which reforms the Political Constitution of the Republic and introduces a ban on the central bank financing the government;

  • Decree 12-95, amending the Organic Law of the Banco de Guatemala to strengthen the supervisory capacity of the Banks Superintendency;

  • Decree 23-95, amending the Banking Law;

  • Decree 24-95, which reforms or repeals some articles of banking laws concerning minimum capital requirements;

  • Decree 29-95, which releases contracting interest rates;

  • Decree 44-95, which reforms the Law on Savings Banks and loans for Family Housing;

  • Decree 34-96, which creates the law on the stock market and commodities;

  • Decree 5-99 creating the Savings Protection Act; and

  • Decree 26-99, which again reforms the Banking Law and the Financial Companies Law, strengthening prudential regulations and the supervisory capacity of the Supervisory and Inspection Authority.


The process of reflection and analysis built around the implementation of the Modernization Program throughout the decade of the nineties made it clear that, in order to consolidate the achievements and deepen the complete modernization of the regulatory framework of the national financial system, it was necessary to even more profoundly reform the current legislation, which should be comprehensive. This involved reforming the entire set of rules and laws governing the central banking system and financial intermediation.


The process of comprehensive reform would not be limited to a one-off reform of some articles of already existing laws. On the contrary, it would include the complete replacement of the Central Bank, Monetary, banks and others laws. In contrast to the modernization program of the nineties, which sought a modernization or partial update of the current regulations to make it compatible with the evolution of financial markets, the new process of comprehensive reform would imply a change in the conception of the role of the central bank and in the orientation of financial regulation.


The guidelines of the comprehensive reform were formalized on 1 June 2000, when the Monetary Board, in resolution JM-235-2000 issued the matrix of the program for strengthening the National Financial System, which contained a series of measures classified in three main areas of action:

  1. Bases for comprehensive reform (short-term program). This component considered the development of a diagnosis of the financial sector situation to prepare the basis for structural legal reforms.

  2. Comprehensive reform of financial laws.

  3. Regulatory amendments that would include the regulations that would develop the content of the comprehensive reform of financial laws.

The first of these areas of action was crucial to properly guide the design of the legal reform. For this purpose, an in-depth diagnosis of the situation of the financial system in general and the central banking system in particular was carried out. This was formalized in the framework of the financial system Evaluation Program-FSAP - implemented jointly by the World Bank and the International Monetary Fund in the second half of 2000 . One of the main results of the FSAP was an analysis of the weaknesses and strengths of financial legislation and the identification of the main aspects of it that could be reformed.


As a result of the guidelines put forward by the Monetary Board and the diagnosis of the FSAP, the preparation of the comprehensive reform of financial laws focused on drafting four fundamental bills:

a) Organic Law of the Banco de Guatemala . Aimed at promoting macroeconomic stability that allows economic agents the correct decision-making regarding consumption, savings and productive investment. also to the financial sector, in order to fulfill its mission of efficiently allocating credit, for which it had to clearly define the fundamental objective of the Central Bank, strengthen its financial autonomy, and demand transparency and accountability to society.

b) Monetary Law. This was to complement the previous one, establishing the responsibilities of monetary issuance, the definition of international reserves and the determination of monetary currency.

c) Banks and Financial Groups Act . Aimed at promoting the stability of the financial system, allowing greater efficiency in the channelling of savings, strengthening the payment system and increasing the soundness and solvency of the financial system. To this end, it had to establish a general, agile and flexible framework for the functioning of financial groups, allowing for consolidated supervision, favoring risk management and the smooth and orderly exit of troubled banks.

d) Financial Supervision Act . Aimed at promoting the soundness and solvency of the financial system, promoting savings by fostering public confidence in the banking system and enabling the stability of the financial system. To this end, the Banks Superintendency should be strengthened, granting it functional independence, and giving it the power to effectively exercise the supervision and inspection of the financial institutions of the system.


The four basic laws, whose validity starts on 1st June 2002, in conjunction with the Free Foreign Exchange Negotiations Act, which took effect in May 2001, constitute a comprehensive and consistent body for financial regulation delegated by the State, by constitutional mandate making the central banking system exercise surveillance over all matters relating to the currency circulation. Article 132 of the Constitution states that:

"It is the exclusive power of the state to issue and regulate the currency, as well as to formulate and implement policies that tend to create and maintain exchange and credit conditions favorable to the orderly development of the national economy. Monetary, banking and financial activities will be organized under the central banking system, which exercises supervision over everything related to the circulation of money and public debt. This system will be directed by the Monetary Board on which the Banco de Guatemala depends, an autonomous entity with its own assets, which will be governed by its Organic Law and the Monetary Law".

In this sense, it is easy to infer that the four fundamental financial laws focus on regulating the money circulation; that is, the creation of primary money by the Central Bank, and the creation of secondary money by the banks of the system.

It is to be hoped that with this legal framework, and with its joint implementation by the monetary authorities, it will be possible to implement a first-rate monetary policy in line with international best practices. All this for:

  • Facilitate inflation control to reduce it to levels similar to those of industrialized countries.

  • Create the conditions for interest rates, in a competitive market and supported by fiscal policy, to converge to international levels conducive to economic growth.

  • Strengthen the banking system in its liquidity, solidity and solvency.

  • Avoid bad banking practices by people lacking banking knowledge and moral solvency.

  • Strengthen financial supervision, in line with international best practices, which will not only protect national savings, but will result in attracting financial flows to the country.

Taken from: Antecedentes, Elaboración y Espíritu de la Nueva Ley Orgánica del Banco de Guatemala, del Licenciado Mario García Lara, mayo de 2002

To conclude this historical review of the Central Bank, transcribed from a speech given by Mister Lizardo Arturo Sosa López, President of the Monetary Board and of the Banco de Guatemala, pronounced on 31 May 2002.


As can be seen, the laws that take effect at midnight today, constitute a comprehensive and harmonious reform of the national financial system that will allow the country to strengthen and modernize banking supervision, in accordance with best practices and international standards, which will not only protect and encourage national savings but will result in the attraction of financial flows to the country. This should lead to greater stability, solidity, solvency and liquidity of the national financial system.

In addition, Guatemala will have a first-rate monetary policy aimed at controlling inflation and, in this way, contribute to the creation of a macroeconomic environment that results in higher and better rates of economic growth, which support the integral economic development of our nation.


The set of financial laws constitutes a radical reform (that is, that goes to the roots of everything related to the money and credit circulation mechanisms) such as that which rarely occurs in the history of nations. Comparable, perhaps, were the financial reform processes already mentioned, in 1926, during the government of General José María Orellana, and in 1946, during the government of Doctor Juan José Arévalo. During the first, the Quetzal was established as the national currency and the foundations were laid for the functioning of a banking system run by the central bank. During the second, the Banco de Guatemala was founded and the monetary system was adapted to the standards that the international community adopted post-World War. Both reforms of the last century, as well as the new reform that we will govern as of tomorrow, required a painstaking design, discussion and approval process, which demanded the patriotic effort of the different actors involved at the political, technical, national and international levels, the result of which was, in both moments of our History, which is essential to improving economic functioning and, consequently, the well-being of all Guatemalans.



1. During the second and third decades of the twentieth century, Professor Kemmerer advised several Latin American governments (Chile, Colombia, Ecuador and Peru) to create their central banks, in the image of the Federal Reserve banks that had been established in the United States in 1913.

2. In the mid-twentieth century, Dr. Triffin also led other advisory teams for financial reforms in other Latin American countries.

3. It should be added that the drafting of some parts of that Organic Law of the Banco de Guatemala also had the advice of Dr. Raúl Prebisch, former manager of the Central Bank of the Argentine Republic.

4. For example, the spirit and wording of the Organic Law of the Banco de Guatemala of 1946 was changed, among other legal provisions, by decree 1,704 (dated September 1967) that modified the establishment of the Monetary Board, by decree 62-70 (dated September 1970) that shortened the period of the presidency of the central bank, and by decree 106-71 that created the "Financial Public Sector" (although the latter was later corrected by 41-85).

5. The FSAP was led by a team of experts who visited Guatemala on two missions chaired by Alfredo Leone and Augusto De La Torre in July and September 2000. The FSAP led to a process of advice and follow-up to the legal reforms by expert officials from international organizations.

6. It was adopted on 23 April 2002, by Decree No. 16-2002 of the Congress of the Republic.

7. It was adopted on 24 April 2002, by Decree No. 17-2002 of the Congress of the Republic.

8. A first version of this law had been adopted by decree 4-2002 in February 2002. The final version, revised and compatible with the other financial laws, was approved on 29 April 2002, by Decree No. 24-2002 of the Congress of the Republic.

9. It was adopted on 25 April 2002, by Decree No. 18-2002 of the Congress of the Republic.

10. It should be noted that Guatemala is one of the few countries whose Constitution establishes, on the one hand, the central banking system in charge of fulfilling the state's function of regulating the circulation of the currency and, on the other, confers the central bank the status of autonomous.