JPRM-2022-008-G — Norm on External Assets and Liabilities of the Central Bank of Ecuador

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RESOLUTION No. JPRM-2022-008-M

THE MONETARY POLICY AND REGULATION BOARD

CONSIDERING:

That, Article 226 of the Constitution of the Republic of Ecuador prescribes that public servants and persons acting under state authority shall exercise only the competencies and powers attributed to them in the Constitution and the Law;

That, Article 227 of the same Constitution states that Public Administration constitutes a service to the community governed by the principles of effectiveness, efficiency, quality, hierarchy, coordination, planning, among others;

That, the first paragraph of Article 303 of the Constitution of the Republic determines that the formulation of monetary, credit, exchange, and financial policies is the exclusive authority of the Executive Branch and will be implemented through the Central Bank of Ecuador;

That, Article 47.1 of the Organic Code of the Monetary and Financial System created the Monetary Policy and Regulation Board as part of the Executive Branch, responsible for formulating monetary policy, the highest governing body of the Central Bank of Ecuador, and determines its composition;

That, Article 47.6 supra, regarding the functions of the Monetary Policy and Regulation Board, among others, establishes: "1. Formulate policy in the monetary sphere and observe its application by the Central Bank of Ecuador to preserve the integrity and sustainability of the dollarization monetary system and the financial system, in accordance with the provisions of this Code; (...) 7. Formulate the policy for the operations of the Central Bank of Ecuador; (...) 26. Those others conferred by law.";

That, Article 135 of the same Code determines: "Without prejudice to the objective specified in Article 27, the Central Bank of Ecuador may intervene in the purchase, sale, or negotiation of gold or other precious metals and may conduct financial operations with these metals to obtain liquidity credits in accordance with Article 38 of this Code, in the form and conditions authorized by the Monetary Policy and Regulation Board.

Under no circumstances may this type of operation be used to directly or indirectly finance or back the entity in charge of public finances or any public entity.";

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That, Article 137 ibidem regarding international reserves and external assets states: "International reserve is understood as the total of external assets in foreign currency and financial instruments held by the Central Bank of Ecuador against non-residents, denominated in currencies considered convertible, liquid, and freely available. The international reserve is composed of the following assets:

1. Monetary gold held by the Central Bank of Ecuador;
2. Banknotes and coins denominated in freely convertible currencies at the Central Bank of Ecuador;
3. Net deposits in financial institutions and international financial organizations, short-term;
4. Negotiable and liquid debt securities denominated in freely convertible currencies and issued by or backed by foreign governments, central banks, or international financial organizations;
5. Claims against international financial organizations;
6. Special Drawing Rights (SDRs) held in the account of the Republic of Ecuador at the International Monetary Fund;
7. The reserve position of the Republic of Ecuador at the International Monetary Fund; and,
8. Any other financial asset easily negotiable abroad, denominated in freely convertible currencies, as determined by the Monetary Policy and Regulation Board.

The Central Bank of Ecuador will carry out transactions with the assets forming part of the international reserve and will administer said reserve in accordance with international best practices and in accordance with the objective established in Article 27 of this Code. The Central Bank of Ecuador will invest the international reserve in assets that prioritize, in order, security, liquidity, and profitability.

The Monetary Policy and Regulation Board will issue regulations to administer an international reserve adequate to the needs of international payments, as well as the methodology for calculating the international reserve.

In the event that the international reserve decreases, or may decrease or reach levels that could endanger the policies of the Monetary Policy and Regulation Board, including the backing rule established in this Book, and the Central Bank of Ecuador cannot remedy such decrease, the Monetary Policy and Regulation Board will recommend a policy to the entity in charge of public finances to remedy this

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situation. The recommendation of the Central Bank of Ecuador will be based on a report that includes the causes leading to the decrease in the reserve.

The external assets of the Central Bank of Ecuador will be composed of the international reserve, net assets in foreign financial institutions that are not freely available, units of account issued by international monetary organizations, positions with international organizations, positions of the Central Bank of Ecuador in international bilateral or multilateral agreements; and, other external assets in foreign currencies determined by the Monetary Policy and Regulation Board.";

That, the Fifty-Fourth Transitional Provision of the same Code prescribes: "Resolutions contained in the Codification of Monetary, Financial, Securities and Insurance Resolutions of the Monetary and Financial Policy Board and norms issued by control bodies will remain in force until the Monetary Policy and Regulation Board and the Financial Policy and Regulation Board resolve what corresponds, within their respective competencies.";

That, Chapter XIII: "On the External Assets and Liabilities of the CBE", of Title I: "Monetary System", of Book I: "Monetary and Financial System" of the Codification of Monetary, Financial, Securities and Insurance Resolutions, issued by the former Monetary and Financial Policy and Regulation Board, contains provisions related to policies for the commercialization of non-monetary gold by the Central Bank of Ecuador and the norm to establish the methodology for calculating international reserves;

That, it is necessary to adapt the applicable regulatory norms regarding the external assets and liabilities of the Central Bank of Ecuador, corresponding to the policies for the commercialization of non-monetary gold by the Central Bank of Ecuador and the provisions to establish the methodology for calculating international reserves, in accordance with current regulations;

That, it is the authority of the Monetary Policy and Regulation Board to resolve on the regulations contained in the Codification of Monetary, Financial, Securities and Insurance Resolutions, issued by the former Monetary and Financial Policy and Regulation Board, that relate to the monetary sphere, with the aim of incorporating such provisions into the own regulations of the Monetary Policy and Regulation Board, prior to the analysis of the pertinence of each norm and provision, in a disaggregated manner;

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That, the Monetary Policy and Regulation Board, in an ordinary session by mixed modality, on February 23, 2022, reviewed the proposal sent via memorandum No. BCE-BCE-2022-0034-M, of February 16, 2022, by the General Manager of the Central Bank of Ecuador to the President of the Monetary Policy and Regulation Board; as well as, the technical reports No. BCE-SGPRO-015-2022/BCE-DNPRMF-018-2022/BCE-CGAF-005-2022/BCE-DFP-011-2022, signed by the General Financial Administrative Coordination and the Sub-gerency of Programming and Regulation of February 15, 2022; and, the technical report No. BCE-SGOPE-005-2022/ BCE-DNGR-025-2022, signed by the Sub-gerency of Operations of February 14, 2022; as well as, the legal report No. BCE-CGJ-021-2022, of February 15, 2022; and,

In exercise of its functions and in attention to Article 47.7 of the Organic Code of the Monetary and Financial System, the Monetary Policy and Regulation Board resolves to issue the:

NORM ON THE EXTERNAL ASSETS AND LIABILITIES OF THE CENTRAL BANK OF ECUADOR

CHAPTER I: POLICIES FOR THE COMMERCIALIZATION OF NON-MONETARY GOLD BY THE CENTRAL BANK OF ECUADOR

Art. 1.- In accordance with what is established in the Organic Code of the Monetary and Financial System and in the Mining Law, the Central Bank of Ecuador will commercialize non-monetary gold from small-scale and artisanal mining, directly or indirectly, through correspondents and public and private economic agents, previously authorized by the Central Bank of Ecuador itself. These negotiations constitute monetary operations.

Art. 2.- The Central Bank of Ecuador will determine the quota for the purchase of non-monetary gold based on technical criteria that correspond, but are not limited to, the following: desired quantity of non-monetary gold with respect to the international reserve, projected levels of the gold price in the international market; and, estimation of the quantity of non-monetary gold offered by economic agents operating with the Central Bank of Ecuador.

Art. 3.- The commercialization of non-monetary gold by the Central Bank of Ecuador has as its main objective to strengthen the international reserve and contribute to small-scale and artisanal mining.

Art. 4.- The Central Bank of Ecuador has the preferential right to purchase non-monetary gold from public and private economic agents authorized by the Bank itself.

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Art. 5.- The Central Bank of Ecuador will purchase non-monetary gold in "doré" bars, which, prior to their acquisition, will be subject to the methodology and technical process defined by the Central Bank of Ecuador to determine the quality and quantity of fine gold that the "doré" bars to be acquired possess.

Art. 6.- The purchase price of non-monetary gold will be defined by the Central Bank of Ecuador, considering a reference or benchmark of the international price, which is published in the specialized systems available to the institution. The Central Bank of Ecuador is authorized to recognize premiums or discounts to the value of the selected reference, in consideration of: the conditions of the international gold market, the level of demand for non-monetary gold by the Central Bank of Ecuador; and, the operational costs related to the purchase.

Art. 7.- The Central Bank of Ecuador will allocate non-monetary gold to the following purposes: sale in the domestic market, sale in the international market, increase of monetary and non-monetary gold reserves and/or in negotiations own to the Central Bank of Ecuador.

Art. 8.- In the commercialization of non-monetary gold, the Central Bank of Ecuador will comply with regulations regarding prevention, detection, and eradication of the crime of money laundering and financing of crimes such as terrorism.

Art. 9.- The Central Bank of Ecuador will keep a record of the commercialization of non-monetary gold and of the public and private economic agents intervening in the gold commercialization process.

CHAPTER II: THE METHODOLOGY FOR CALCULATING INTERNATIONAL RESERVES

Art. 10.- International Reserves are composed of:

1. Net position in foreign currency, which comprises:

a) Foreign currency cash, which are immediate cash availabilities in the cash and vaults of the Central Bank of Ecuador and remittances in transit in the country. b) Net deposits in banks and financial institutions abroad, which corresponds to net demand deposits or at a fixed term with interest recognition. Includes overnight deposits, weekend deposits, call accounts, and current accounts and other similar immediate or short-term liquidity accounts, including the value of cash remittances in transit to and from abroad. c) The value of remittances of checks and securities in foreign currency drawn or issued against foreign financial institutions.

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d) Investments made in international financial institutions, multilateral and supranational organizations, in time deposits and fixed income securities, which are immediately available.

2. Special Drawing Rights "SDRs".

3. Monetary gold abroad.

4. The reserve position at the International Monetary Fund.

Art. 11.- The components of International Reserves will be valued at fair value, in accordance with established accounting regulations.

Art. 12.- The calculation of International Reserves is determined by the following accounts of the Chart of Accounts of the Central Bank of Ecuador:

1. Foreign Currency Cash (Account 111):

Comprises immediate cash availabilities in the cash and vaults of the Central Bank of Ecuador and remittances in transit in the country. It is considered an International Reserve asset by monetary units issued abroad and serving as reserve currency.

2. Deposits in banks and financial institutions abroad (112):

Corresponds to net demand deposits or at a fixed term with interest recognition. Includes overnight deposits, weekend deposits, call accounts, and current accounts and other similar immediate or short-term liquidity accounts.

From the value of these deposits, funds corresponding to the collateral for bond interests, deposited at the Federal Reserve Bank of New York, and non-prepayable time deposits are deducted.

Additionally, the value corresponding to unavailable funds in banks and financial institutions abroad is deducted; as well as short-term reserve international liabilities, as shown in the table below:

Account	Description		Value
112	Banks and Financial Institutions Abroad	(+)	x,xxx.xx
112110	Unavailable Funds in Foreign Banks	(-)	xxx.xx
112210	Unavailable Funds in Foreign Financial Institutions	(-)	xxx.xx
211	Obligations with Banks and Financial Institutions Abroad	(-)	xxx.xx
2198	Other External Liabilities - monetary gold swap	(-)	xxx.xx
Net Value Deposits in banks and financial institutions abroad		X,XXX.XX

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3. Remittances Checks and Securities in Foreign Currency (113)

Includes the value of remittances of checks and securities in foreign currency drawn or issued against foreign financial institutions.

4. Investments abroad (Accounts 114):

Records investments made in international financial institutions, multilateral and supranational organizations in time deposits, securities, and fixed income instruments. These investments are made based on security, liquidity, and profitability criteria, in that order. Does not include accrued interest.

These investments are considered highly liquid, under the control of the Central Bank of Ecuador, and negotiable when required. They are securities of immediate availability carried out under low-risk parameters and conditions.

5. Monetary gold abroad (Accounts 1152):

Records the holdings of monetary gold held by the Central Bank of Ecuador at market price, either for custody or as a time deposit on which interest is received. Monetary gold comprises bars, ingots, and high-purity coins abroad, valued at international market prices.

6. Special Drawing Rights "SDRs" (Sub-accounts 1161):

Records SDR holdings issued by the International Monetary Fund held by the Central Bank of Ecuador on behalf of the Republic of Ecuador.

7. Reserve Position at the International Monetary Fund:

Corresponds to contributions in gold, foreign currency, and units of account that the Central Bank of Ecuador makes on behalf of the State at the International Monetary Fund, minus the obligations it holds with said organization.

Account	Description		Value
1171	Contributions to International Monetary Fund	(+)	x,xxx.xx
2171	Obligations with International Monetary Fund	(-)	xxx.xx
Net Position International Monetary Fund		X,XXX.XX

GENERAL PROVISIONS:

FIRST.- The Monetary Policy and Regulation Board recognizes the provisions contained in Chapter XIII: "On the External Assets and Liabilities of the CBE", of Title I: "Monetary

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System", Book I: "Monetary and Financial System", of the Codification of Monetary, Financial, Securities and Insurance Resolutions issued by the former Monetary and Financial Policy and Regulation Board, as part of the monetary regulations on which it corresponds to resolve.

SECOND: The General Management of the Central Bank of Ecuador, within the scope of its competencies, will issue or modify the necessary regulations for the implementation of what is resolved in this resolution, and will inform the Monetary Policy and Regulation Board.

SINGLE REPEALING PROVISION.- Chapter XIII: "On the External Assets and Liabilities of the CBE", of Title I: "Monetary System", of Book I: "Monetary and Financial System" of the Codification of Monetary, Financial, Securities and Insurance Resolutions, issued by the former Monetary and Financial Policy and Regulation Board, is expressly repealed.

FINAL PROVISION.- This resolution will enter into force from its issuance, without prejudice to its publication in the Official Register.

Be charged with its publication on the institutional website, to the Document Management and Archive Directorate of the Central Bank of Ecuador.

COMMUNICATE.- Given in the Metropolitan District of Quito, on February 23, 2022.

THE PRESIDENT

[Signature] TATIANA MARIBEL RODRÍGUEZ CERÓN

The foregoing resolution was signed by Dr. Tatiana Maribel Rodríguez Cerón - President of the Monetary Policy and Regulation Board, in the Metropolitan District of Quito, on February 23, 2022.- I CERTIFY.

ADMINISTRATIVE SECRETARY

[Signature] MARÍA ALEXANDRA GUERRERO DEL POZO