The Central Reserve Bank of Peru (Spanish: Banco Central de Reserva del Perú) is the Peruvian central bank. It mints and issues metal and paper nuevos soles currency. Its branch in Arequipa was established in 1871 and it served the city by issuing money as well as maintaining a good reputation for savings accounts in Southern Peru. It is the equivalent of the Federal Reserve of the United States or the European Central Bank in Europe.

The Constitution states that the purpose of the Central Reserve Bank is to preserve monetary stability. The Central Reserve Bank's target annual inflation is 2.0 percent, with a tolerance of one percentage point upward and downward; its policies are aimed at achieving that goal.

The Constitution also assigns the following functions to the Central Reserve Bank: regulating currency and credit of the financial system, administering the international reserves in its care, issuing banknotes and coins, reporting regularly to the country on national finances, and managing the profitability of funds.

Mission of the BCRP
As established by the Peruvian Political Constitution of Peru, the objective of the BCRP is to preserve monetary stability. To do so, the Central Bank has established an inflation target of 2.0 percent, with a tolerance margin of ±1 percent. BCRP actions are oriented towards maintaining this level of inflation in the Peruvian economy.

Inflation is detrimental to economic development because it prevents money from adequately fulfilling its functions as a medium of exchange, as a unit of account, and as a store of value.

Inflation discourages investment and promotes speculation because it generates distortions in the price system, as well as an inefficient allocation of resources. The devaluation of money resulting from generalized and continuous rises in the prices of goods and services affects mainly lower-incomes groups as these groups have usually no easy access to inflation hedging mechanisms. Thus, by maintaining inflation low, the BCRP creates the necessary conditions for normal economic activity which, in turn, contributes to achieve higher levels of sustained economic growth.

Functions of the BCRP
The BCRP functions, as defined by the Constitution, include the following:

• To regulate money and credit in the financial system;
• Manage international reserves;
• Issue notes and coins;
• Periodically report on the country finances.

Structure and Organization
The Board of Directors is the highest institutional authority. It is concerned with the establishment of the policies to be applied in order to achieve the purpose of the Bank, and is responsible for the general administration of its activities.

The Bank is governed by a Board of Directors composed of seven members:

• The Executive Branch appoints four members, among them the President of the Bank. Congress ratifies the latter and appoints the other three members;
• The Directors of the Bank are appointed for a period of five years. They do not represent any particular interest or entity. Congress can remove them from office for serious misconduct.

The Directors must be Peruvian, have recognized moral solvency and possess broad experience and competence in economics and finance. They do not represent any entity or particular interest and their votes must only take into account the accomplishment of the Bank's purpose and functions.

The President, Directors and General Manager must be sworn in by the President of the Supreme Court prior to taking office.

Directors cannot hold any post or executive position in the Bank nor have any individual administrative responsibility.

The Directors are individually and jointly responsible for decisions made with their participation. Their responsibility does not disappear even if they except their vote, unless within the next five days they give notice of their dis conformity to the President through a Notary Public.

Budget and Financial Statements
The Bank has autonomy for budget purposes. It is responsible for the programming, formulation, approval, execution, expansion, modification and control of the institution's budget.

The Bank's financial year ends on the 31st of December.

The financial statements are prepared in accordance with the generally accepted accounting principles, in what may be applicable to Central Banking, and the rules established by the Superintendency of Banking and Insurance.

The differences that may result from the readjustment in the domestic currency valuation of the Bank's assets and liabilities in gold, silver, foreign currency, Special Drawing Rights or other monetary units of international use, shall be credited to a special account and shall not be considered either as gains or losses.

Payments Systems
The payments system refers to the instruments, operating procedures and organizations that allow economic agents to transfer funds to one another. A safe and efficient payments system significantly affects the effectiveness of monetary policy, the soundness of the financial system and the functioning of the economy as a whole.

The payments system includes cash- and non-cash payments. The latter are made through the inter bank transfer systems.

Non-cash payment systems can be classified into high- and low-value systems. The former, Sistema de Liquidación Bruta en Tiempo Real (Sistema LBTR), is a RTGS system which handles and settles interbank transfer orders in real time, and on a one-by-one basis. Low-value payment instruments -checks and low-value transfers- are processed by the automated clearing house Cámara de Compensación Electrónica S.A (CCE) and settled on a net deferred basis through Sistema LBTR.

The BCRP designates, regulates and supervises the systemically important payment systems: Sistema LBTR, CCE and Sistema de Liquidación Multibancaria de Valores (SLMV), the payment arrangements of the securities settlement system. In addition, it authorizes the organization and operation of clearing firms.

Investment Policy
The BCRP’s international reserve policy emphasizes capital preservation and liquidity. Once these criteria are met, the BCRP seeks to maximize the return on its foreign assets.

Management of international assets takes into consideration the source and characteristics of BCRP liabilities (amount, currency, maturity and volatility). Such policy is oriented towards minimizing market risks that could affect the value and availability of the resources managed by the BCRP.

The investment portfolio of the BCRP is distributed in tranches that reflect the diverse nature of the sources of funds. The liquidity tranche corresponds to deposits in foreign currency (mainly reserve requirements) held by financial entities in the BCRP; the inter mediation tranche is related to deposits in foreign currency placed by the public sector in the BCRP; the investment tranche is made up of the own resources of BCRP (Net International Position); and the immediate availability tranche includes very short-term investments mainly aim to cover liabilities payable to local banks and the excess of resources of both liquidity and investment tranches, which are temporarily accumulated before being distributed accordingly.

Useful links

Currency of Peru:

Peruvian nuevo sol

List of Central Banks:

Central Banks

Official website of Central Reserve Bank of Peru:

www.bcrp.gob.pe

Ministry of Economy and Finance of Peru:

www.mef.gob.pe

Annual Report of the BCRP for 2011:

www.bcrp.gob.pe