Amendment to Bank Reserves Policy in Nicaragua
Between April 18 and June 27, at least 750.6 million dollars have come out of the deposits of the national financial system, according to a balance published by the Nicaraguan Foundation for Economic and Social Development (Funides) based on official figures. According to specialists, this is due to the fears provoked among depositors by the sociopolitical crisis that Nicaragua has experienced for three months, as well as the increase in people’s need to have cash in their homes.
In view of this situation, the Board of Directors of the Central Bank of Nicaragua approved an amendment to the mandatory bank reserve policy in force as of June 18 of this year. The purpose of said amendment is to facilitate the administration of the daily liquidity of financial institutions and promote the stability of the Financial System. The reform consisted of a reduction of 2% in the daily reserve and in a change of the fourteenth to weekly reserve, although maintaining it at 15%.
In accordance with the financial laws of the country, the legal reserve consists of the deposit in the Central Bank of a specific percentage of the amount of deposits and other obligations with the public in charge of banks and financial corporations. Likewise, other passive, contingent or service operations carried out by such institutions will be subject to reserve, when these operations, in the opinion of the Board of Directors, following a report from the Superintendent of Banks, must be constitutive of bank reserve.
The legal reserve can be used for different purposes: precautionary liquidity, expansion or contraction of monetary aggregates, incentive savings or productive credit and defense of the exchange regime, among others.
In this context, the impact of the reduction in the legal reserve requirement is an increase in the money supply. For this reason, with the increase in bank withdrawals, the Central Bank of Nicaragua has opted to reduce it, thus increasing the liquidity of banks to ensure the availability of depositors’ money to be withdrawn when they so require.
Michelle Avilés Murillo
Associate
García & Bodán
Nicaragua