Headquarters of the Commonwealth Bank
Seal of the Commonwealth Bank
|Headquarters||Dormo Building, Villadad,|
|Central bank of||Auratia|
|Preceded by||Banco Nacional de Puerto del Rey|
|Succeeded by||Euclean Central Bank (2000)1|
|The Commonwealth Bank still exists, but many functions have been taken over by the ECB.|
The Commonwealth Bank (Auratian: el Banco de la Mancomunidad), officially the National Bank of the Commonwealth of Auratian Catholic States (Auratian: el Banco Nacional de la Mancomunidad de los Estados Católicos Oratianos), the central bank and highest national monetary authority in Auratia. The Commonwealth Bank is part of the Euclean Central Bank System. The bank is headquartered in Villadad and maintains an office in Cienflores, the nation's capital.
Established in 1905 to replace the Banco Nacional de Puerto del Rey, the Commonwealth Bank once played a pivotal role in setting all forms of monetary policy, as well as printing Auratia's currency, the real. Before the Commonwealth Bank, the federal government did not have a proper national bank to set monetary policy. The Banco Nacional de Puerto del Rey, widely seen as corrupt and ineffective, was disbanded its inability to respond to various financial crises that gripped the nation around the turn of the 20th century. The Commonwealth Bank is widely seen as the brainchild of Premier Aleixo Alto, whose administration passed the Commonwealth Bank Act 1905. David Dormo, a prominent banker, was selected to become its first president. The Commonwealth Bank proved to be too weak to implement quantitative easing following the Great Collapse of 1913. After the collapse, the bank's scope and authority were expanded to allow it to more quickly, independently, and efficiently respond to economic troubles. The bank's weaknesses, particularly its corrupt and impotent leadership, were once again laid back during the Auratian economic crisis of 1980, where the bank's inaction contributed to an economic collapse and recession.
Since Auratia's ascension into the Euclean Community in 2000, the Commonwealth Bank has surrendered some of its monetary policy authority. Nevertheless, the bank continues to be important in Auratian politics. The bank is governed by the Board of Directors, whose eight members are appointed by the president of Auratia on the advice of the Finance minister. In turn, the Board of Directors selects the President of the Bank for a term of ten years.
- 1 History
- 2 Responsibilities
- 3 Structure
Central Banking before the Commonwealth Bank
|Timeline of central banking in Auratia|
|1573–1770||No central bank|
|1770–1820||Banco de Oratia|
|1820–1835||Second Bank of Auratia|
|1858–1905||Banco Nacional de Oratia|
|2000–present||Commonwealth Bank as a part of the ECB System|
When the Oratiano princes united in 1573 to create the Kingdom of Auratia, there were no provisions made for a unified, government-controlled central bank, or any real regulation on private banks for that matter. Most princely government authorities, as well as the Kings of Auratia (the Cristianos), deposited their wealth (and by extension the wealth of their lands) in commercial banks or private coffers. In this system, bankers in Auratia grew extremely powerful, and their activities went more or less unchecked. The economic structure was more or less the same in the Kingdom of Iustia, Auratia's neighbor on the peninsula.
In 1770, long after Auratia lost its colonial possessions in Asteria Inferior and Superior, Monastral Hidalgo, the kingdom's finance minister, convinced King Christian XIII to charter the Banco de Oratia. Officials hoped that the bank would allow the government to pay off its crippling debt. However, nepotism and corruption got in the way of good management, and the bank was rarely on even keel.
After the monarchy was abolished during the Alzamiento in 1820, the Auratian Senate chartered the Second Bank of Auratia for a fifteen-year period to print money and mint coinage. The bank faced opposition as it was viewed as an encroachment on the rights of the Auratian States. By 1835, the bank's charter expired, and the country entered into a period of free banking where individual banks printed money without government direction or oversight.
In 1858, the Supreme Court of Auratia declared free banking to be unconstitutional as only the federal government was entitled to print money. The court mandated that the government establish a national bank. The Banco Nacional de Puerto del Rey was chartered in 1860, with the government owning just under 20% of shares and private investors owning the rest. Like its predecessors, the bank was established on the gold standard.
The Banco Nacional faced several immediate challenges Following the unification of Auratia and Iustia, the Banco was responsible for integrating the Iustian economy and currency into the Auratian system. Their prerogative was to remove Iustian banknotes from circulation and pump in the real. Economics generally view the Banco's efforts as a failure on this front, as Iustian money was still accepted by many in former Iustian territories until the latter parts of the 1920s.
The Banco Nacional's inability to capably respond to a series of market shocks at the turn of the 20th century is given as the primary reason for its downfall and the creation of the Commonwealth Bank.
Commonwealth Bank Act
Although there had been talks of replacing the Banco Nacional since the 1880's, the proposal had not garnered mainstream political attention until the election of Aleixo Alto as premier in 1897. Alto, the former finance minister, sought to champion economic reform by cutting otiose government programs and streamlining the efficiency of the nation's banking system. Records indicate that, at first, Alto was more keen on reforming the Banco Nacional instead of replacing it outright. Much as Alto tried, however, he could not gather the support of the Banco's bureaucracy to force the changes internally, so he resolved to replace the Banco with another more powerful and more qualified institution.
Alto found support in David Dormo, a prominent banker who had written at length about the abuses of the Banco Nacional. In August 1903, Alto introduced the first draft of what would become the Commonwealth Bank Act 1905 to the Assembly of the People, the lower house of the Auratian Senate.
Alto found opposition immediately. He was opposed by the Federalitionists, the opposition in the Assembly who feared that a stronger central bank would override the power of the States. The Banco's bureaucracy vehemently opposed the bill and used its influence to sway members of Alto's own party. For his part, Dormo and other bankers lobbied members of the Senate extensively. Dormo was widely accused of bribing legislators and promising them positions in the nation's economic sphere in exchange for support for the bill.
On many occasions, violence broke out in both changes of the Auratian Senate. Even though Alto's Unity Party held a majority of seats in both houses, it was still extremely difficult to pass the bill. Alto begrudgingly agreed to many concessions, including strict regulation of the Commonwealth Bank's activities and the elimination of most of its independence in setting monetary policy. The Commonwealth Bank Act 1905 was passed 118-110 in the Assembly of the People and 13-11 in the Council of the States and was signed into law by President Lionel Asanza on 5 August 1905. The act is considered among the most controversal and hotly-debated pieces of legislation to ever be considered by the Auratian Senate.
Dormo would go on to be the first President of the Bank. He attempted to grow the bank's power beyond its legislative instruments, but failed. Dormo warned the government that the Commonwealth Bank Act 1905 did not do enough to implement necessary structural reforms to fix the country's central banking system. He continued to decry private investors' control over bank shares, and therefore bank policies. Dormo was also a very early critic of the gold standard, which the bank would not drop until 2000, and warned that Auratia would not be prepared to weather another recession.
In a twist of history, Dormo died of a sudden heart attack on 14 March 1913, a hair less than six months before the beginning of the Great Collapse. Many economists believe that, had Dormo survived, Auratia would have faired much better during the ensuing economic crises.
Great Collapse and Great War
David Dormo's sudden death left the Commonwealth Bank leaderless on the eve of the Great Collapse. Not recognizing the economic urgency to fill the roll, the bank's Board of Directors left the position upon for three months until Simón de Dios was selected to lead the bank on 126 September 1913. De Dois, considered by most to be an able manager and apt candidate for the role, was quickly overwhelmed when markets began to markets across the world began to plummet on 16 October 1913.
Many scholars have come to attribute the worsening of Auratia's economic situation to the inside lag in the Commonwealth Bank. It took until 10 January 1914 for de Dios to implement the first rounds of quantitative easing. In his personal notes, de Dios attributed the lag to his need to corral support among the private investors who had conflicting interests. It is also understood that one of the causes of the Great Collapse was the belief in liquidationism and staunch opposition to central bank involvement in the remedying the depression. The crisis was all the more compounded by the bank's reliance on the gold standard, which left de Dios little room to enact the monetary policy necessary to curb growing unemployment and inflation.
Though considered sincerely set forth, de Dios's monetary policy did little to remedy the ongoing economic crisis. He did too little too late to combat debt deflation, and his policies did not inspire confidence in stakeholders. His crucial decision to raise interest rates after significant browbeating by politicians is generally understood to have worsened the crisis. Almost all of the successful initiatives to lessen the blow of the Great Collapse came from the fiscal policy of Premier Jacobo Molinero and not the bank's efforts.
Upon the overthrow of the legitimate government of Héctor Alvear and the ascension of the September Clan in 1927, the Commonwealth Bank was strongarmed into selling out massive war bonds to finance the September Clan's support of the Great War. This destroyed the bank's independence and crippled the nation's economy. The bank would not see a revival until the 1950s.
Although Premier Héctor Alvear was suspicious of the power of the Commonwealth Bank and sought to keep it on a short leash, his views were not shared by most of his precessors, or even by many members of his party, the Labour Party. by 1951, the bank, though not yet completely insolvent, was interpreted by many to be on its last knee. Succeeding Premiers differed in their approaches, with some favoring restructuring the bank's structure, including abolishing the gold standard, while others looked kindly on private investment to regenerate the bank and the war-torn economy as a whole.
In the end, a compromise was reached: the infamous gold standard would be retained, but the bank would become completely public and would no longer be listed as companies. In 1964, near the completion date of the planned city of Cienflores, the nation's next capital, the administration of Premier Silvio Caballero amended the Commonwealth Bank Act 1905 to relocate the bank to Villadad instead of the future capital. Caballero's government reasoned that this move, which was controversial, would offer the bank greater independence in setting monetary policy of its own accord without the influence of national politics in Cienflores. Because Villadad was the nation's up-and-coming financial center, Caballero reasoned that, by being close to the beating heart of Auratia's economy, the Bank would be more attuned to the country's monetary health and more speedy in responding to financial crises.
The 1970s are typically seen as the acme of the Commonwealth Bank's power. Fearing a loss of financial authority to the hands of a powerful supranational authority, the Commonwealth Bank actively lobbied the government to abstain from signing onto the Treaty of Ashcombe and therefore remain outside of the Euclean Community. In a move many have interpreted to be a great overstep in the bank's authority, several bank Presidents warned that EC membership could jeopardize the nation's agriculture sector and forever mar the government's relationship with the powerful Auratian farmer lobby.
The Commonwealth Bank thus defined itself as one of the most powerful and independent bureaucratic institutions in Auratia, and it enjoyed a level of autonomy greater than almost all other central banks in Euclea. Protests against the bank's authority, both from within and outside the government, were muffled by comparatively high levels of economic growth and a superlative agricultural sector.
Auratian economic crisis
In August 1976, Jaume Yáñez, a former finance minister, was selected to lead the bank as President. Yáñez, a staunch fiscal conservative and fervent non-interventionalist, represented a wave of conservative economic policy implemented by Liberal premiers. Increasingly, the country turned its focus away from domestic producers and towards incentivizing foreign direct investment to diversify the economy. Yáñez, who spearheaded many of these reforms, advocated for lax regulation on business and slashed taxes. As the bank's President, Yáñez religiously defended the gold standard and torpedoed any efforts to do away with it. He was alone among financial leaders of the world who were increasingly abolishing the outdated standard.
The country's economic expansion came to an abrupt halt when the Auratian real estate bubble burst on 4 August 1981. The Villadad Bolsa, the nation's principal stock exchange lost 11 percent of its value at the opening bell on that day, and the ensuing Auratian economic crisis would sap nearly 30 percent of the nation's GDP.
The Yáñez regime is widely agreed to have worsened the crisis by refusing to follow through with regulations on banks and moneylenders. Under Yáñez's watch, subprime and predatory lending were rampant, and Yáñez is accused of having fostered an unregulatable shadow banking system. Stimulus packages were stalled by partisan bickering, and the leadership of Liberal Party Premier José Maria Lindi fell asunder.
In response to the crisis, Yáñez refused to act substantially. Fearing stagflation, Yáñez paradoxically ordered a stall in money issuance and went about enacting contractionary monetary policy. Yáñez's actions caused Auratia's currency, the real, to deflate beyond control. Even as the nation's economy tumbled into a deep recession, Yáñez was adamant to "let the economy fix itself." He is reported to have mocked households for accruing massive household debt when many characterize his policies as allowing businesses and banks to pile on debt on unsuspecting citizens. The Commonwealth Bank was also handicapped by its reliance on the gold standard, which limited any of the bank's attempts at quantitative easing just as it did during the Great Collapse.
Jaume Yáñez held loyalty among members of the Board of Directors, many of whom came into their positions under Yáñez's recommendation. Because the board refused to act, Yáñez's position as the bank boss was entrenched. However, in March of 1982, leaked documents revealed that Yáñez had received warning of an impending economic crash from within the bank but chose to ignore, instead sacking many of those who brought the problem to his attention. Later that same month, it was also revealed that Yáñez had taken bribes from industry leaders during his time as finance minister. In response, the Prosecutor General filed charges of negligence, dereliction of duty, and bribery against Yáñez.
Yáñez was convicted on all counts. Pursuant to Auratian impeachment law, the Supreme Court of Auratia then ordered him stripped of his office. He was sentenced to twenty years imprisonment and later died in jail. He is one of the few public officials to ever be impeached in Auratian history, and is broadly considered one of Auratia's most disgraced politicians.
As the economy began to improve by the end of 1983, the government was now staunchly in favor of joining the Euclean Community. Negotiations, which had begun in some form by 1980 to Yáñez's disapproval, sped up after the crash as the Sotirian Federation government enacted broad strokes of reform. The gold standard was abolished on 8 July 1984, a date aptly referred to as Auratia's "Economic Independence Day". Restrictions and regulations were placed on the bank; the government now had to approve of the President's appointment and could call for his dismissal at any time. The Commonwealth Bank ceased to be a powerful bureaucratic institution anymore.
Ascension into the ECB System
Although Auratia had rejected EC membership before over five times, and though ascension required an amendment to the Treaty of Puerto del Rey, the nation's constitution, Auratia finally joined the Euclean Community in 1995, whereupon it was given five years to gradually faze out its currency in favor of the euclo. This process was spearheaded by Adelaida Arencibia, the bank's first and only female President to date.
Arencibia introduced euclos into the economy gradually. She ordered ATMs to churn out the euclo bills. By 1 January 2000, businesses were instructed to accept real but give euclo as change. Arencibia guided leadership meant the roll-out went without any problems. It was difficult, however, for the euclo to circulate in more rural parts of the country. As such, Arencibia extended the timeframe in which the real could be accepted as legal tender until 30 December 2001. Owing to Arencibia's efforts, euclos are commonly referred to as adelaidas in Auratian slang.
Since then, Auratia has been using the euclo, and the Commonwealth Bank has surrendered much of its monetary responsibilities to the Euclean Central Bank.
Further information: Central bank
Since the bank's ascension into the Euclean Central Bank system in 2000, the Commonwealth Bank has seen reduced responsibility in terms of setting monetary policy. Although the bank is nominal the chief monetary authority in the country, it has evolved to have both legally and custumarily a narrow band of authority in deciding monetaty pollicy. Most experts tend to agree that the bank has shifted from a monetary authority to a regulatory agency and financial ombudsman. Much of the bank's duties now revolve around surveiling commercial and investment bank activities. The Commonwealth Bank remains the country's lender of last resort.
The Commonwealth Bank prints money and mints coinage according to ECB rules and standards. The bank ensures the steady flow of cash currency. It ensures that the physical is transported safely and without incident. Furthermore, the Commonwealth Bank alerts police and law enforcement of counterfeit money. Commonwealth Currency Security Commission (CCSC), an arm of the Commonwealth Bank, monitors cases of counterfeiting and reports directly to the President of the Bank. The President in turn reports on the security of the euclo to the Senate and the ECB System leadership.
The Commonwealth Bank is responsible for maintaining low unemployment and price stability. The Bank is the lender of last resort and is entrusted with cushioning the blow of economic crises in Auratia by enacting open market operations. The Commonwealth Bank is somewhat unique in this regard, as most banks in the ECB system, including the ECB itself, do not act as lenders of last resort. This is widely seen as a holdover from the bank's years of being independent.
Because the ECB has lost much of its monetary policy authority to the ECB, bank leaders have preferred to ensure financial stability by advising the government on economic policy. The President of the Bank is expected to meet with the Finance minister every week (usually by telephone call), and they will present a bi-annual report to the Senate. The bank is the "chief monetary strategist."
Bank oversight and supervision
In recent years, the Commonwealth Bank has adopted a more regulatory role in supervising the actions of commercial banks to protect investors and discourage fraudulent practices. The Commonwealth Bank's Board of Directors must approve the merger of any two banks in Auratia and has a wide range of antitrust authority. The Board of Directors is also empowered to compel the testimony of bank executives and subpoena documents. Finally, the President of the Bank may, wiith the consent of the Board of Directors, dismiss the board of directors of any commercial bank for fraud, negligence, or other illegal conduct.
The Commonwealth Bank is the country's treasury and the state's banker. It provides banking services to the Commonwealth government and occasionally to the States if they so choose. Public debts and bonds are assumed and paid off by the Central Bank on the government's behalf. The bank also maintains a nationwide payment system.
The Commonwealth Bank is responsible for holding reserves of foreign currency on the government's behalf. The bank's reserves include foreign banknotes as well as government securities of the foreign currency in question. These reserves are kept dormant and only used to stabilize inflation.
Because Auratia had only abandoned the gold standard in 1980, the country still possesses large quanities of bullion in reserve. Exact figures are not typically reported, as the Commonwealth Bank is particularly secretive about its reserves, but it is estimated that the banks holds over 2,200 tonnes of gold in reserve. Auratia has among the highest reserves of gold in Euclea and in the world. Most of the gold is kept securely in the Auratian Bullion Depository vault in Hascara, Iustia Nova.
There have been calls for the country to divest itself of its gold reserves, and the Commonwealth Bank is slowly selling off much of what it has. The official position of the bank, however, is that the bullion depository will be maintained.
Board of Directors
The Board of Directors is the chief decision-making organ of the Commonwealth Bank. It is responsible for formulating general policy and goals, requesting and receiving reports from the President of the Bank, approving bank mergers, supervising commercial and investment banking, and overseeing the four constituent member banks. The Board of Directors sets the bank's by-laws. There were traditionally sixteen members of the Board, but its membership was trimmed down to eight following the ascension of Auratia into the Euclean Community.
Members of the Board of Directors are appointed by the president of Auratia on the recommendation of the Finance minister. Members typically serve five-year terms, though this can be extended. Because there are eight members, it has become customary to choose one member from each of Auratia's eight States, though this is not a rule. The President of the Bank may sit on the Board at the request of members, but he is not given a vote. Likewise, the Finance minister is entitled to sit in on proceedings, but he too is not given a vote.
Meetings of the Board of Directors are chaired by the Chairman of the Board, who serves as primus inter pares. The position rotates among members annually. Unlike other chairmen of central banks, the Commonwealth Bank Chairman has no authority within the bank on his own, and only serves to preside over Board meetings. The current Chairman is Máximo Ortiz.
President of the Bank
The President of the Commonwealth Bank is elected by the Board of Directors on the concent of the Cabinet to serve for a ten-year non-renewable term. The President executes the decisions of the Board, advises the Cabinet and government officials on fiscal and monetary policy, and represents the Commonwealth Bank in the Auratian Senate, the Euclean Central Bank System, and abroad. The President hires and oversees most of the Bank's senior staff. The current President is Tiago Amaral, who assumed his post on 1 May 2020.
Because the Commonwealth Bank was so invovled in politics during the latter part of the 20th century, the President of the Bank was widely considered to be one of the most powerful men in the country, second only to the premier. After the Auratian economic crisis, restrictions and a term limit gelded the authority of the President. In most respects, the President acts as an advisor and overseer. He reports to the Finance minister and in some instances to the Chief Public Defender.