Spanish Central Bank History: Franco Era to European Union

In 1936, the Republican Banco de España financed all the assistance received from Russia. 200 tons of gold were sent to France with the risk that General Franco’s troops would enter Madrid. A government decree ordered to transfer approximately 500 tons to Moscow. The directors of the Bank of Madrid transferred the gold reserves to Cartagena and then by sea to Moscow where they were used to defray the military assistance. These events were known for years as “the Moscow gold”.

1. The Banco de España during the Franco Regime (1939-1975)

After the war, the government set about the difficult task of restoring the country economically. The Banco de España and the financial system as a whole, should be subjected to its guidelines to bring about this recovery. The Banco de España was still a private bank, but it lost all its autonomy.

Spain was excluded from the Marshall Plan, the Bretton Woods conference, the International Monetary Fund, and the World Bank. These supported the ideas of some leaders who pursued a policy based on autarky and interventionism.

The Instituto Español de Moneda Extranjera (1939) was created for controlling currencies, the exchange rate policy, and foreign trade. In 1939, a law established the merger of the two Bancos de España. The new Banking Law (1946) didn’t nationalize the Banco de España, but it was placed under the control of the Ministry of Finance. The autarky and interventionist meant that the financial system was subjected to strict controls and failed to cover the Spanish economy’s needs. An Official Register of Banks was created and tight controls and demands were established for new banks to be admitted.

Monetary policy was controlled by the Ministry of Finance which established the Banco de España objectives, its board was controlled by ministerial representatives, and it was to follow the indications received and provide liquidity determined by the Treasury. The shareholders weren’t taken into account in this policy as the Bank was still a private company.

In 1951 the situation changed as the autarky hadn’t nothing more to offer. Hence a Stabilization Plan was designed for combating the inflationary process and correcting the balance of payments deficit. Spain entered into international economic institutions: the International Monetary Fund, the World Bank, and the OECD.

Economic measures were focused on fiscal reform, reducing the issuance of debt, the automatic pledging of debt in the Banco de España, and the budgetary constraints. The Banco de España played an active role in the design of the Stabilization Plan and it raised the need for a reform of the financial system. In 1962, a law entailed the Bank’s nationalization; it assumed the functions of the bankers’ bank, and also was entrusted the supervision of the entire financial system. But monetary policy, formulation of its objectives, and the setting of the discount rate were in the hands of the Minister of Finance. The results of the Plan were satisfactory and Spain enjoyed rapid economic growth until the outbreak of the Arab-Israeli War in 1973. In that year the Spanish Foreign Currency Institute was closed and its functions were transferred to the Banco de España.

2. The Road Towards the European Monetary Union (1976-1999)

During the transition to democracy, the economic situation of Spain changed profoundly and the Banco de España played a major role.

From 1974 to 1982 the financial system was significantly deregulated, and the restrictions on the operations of saving banks were eliminated to promote competition. The deregulation with other factors caused a financial crisis in which at least 22 banks were bailed out, and also the industrial sector was affected. The actions of the Banco de España were broadly held to have been very positive.