El Salvador - Banking and securities



The Central Reserve Bank of El Salvador, established in 1934, was nationalized in 1961. It is the sole bank of issue and the fiscal agent for the government. The entire banking system was nationalized in March 1980, but was later privatized. By 1989, the financial system was practically broke; destroyed by mismanagement and political conflict. In 1991, as part of economic reforms, the government privatized six commercial banks and seven savings and loan institutions. In 1994, the government created the Banco Multisectorial de Inversiones (BMI) to promote private sector development. The Banking Law was modified in 1995 to encourage foreign banks to enter the country. There were 12 commercial banks in 2002. The International Monetary Fund reports that in 2000, currency and demand deposits—an aggregate commonly known as M1—were equal to $1.1 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $6.1 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 6.93%.

A stock exchange was established in San Salvador in 1993, with five government issues of long-term bonds. In the first 12 months of activity, stock market transactions were nearly $100 million; the rate of growth in 1993–95 was rapid, and by the end of 1995 transactions reached an estimated $2.4 billion. The market trades almost exclusively in government bonds and short-term commercial paper, but private companies put shares on the market in the late 1990s.

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