The latent risk of Congressman Flores Ancachi's bill: a threat to Peru's economic stability?

Congressman Flores Ancachi from the political party Acción Popular has presented a bill that has stirred controversy and raised alarms in the country's economic sphere. This is a proposal that, at first glance, may seem harmless, but it hides a latent threat to the independence of the Central Reserve Bank (BCR) and to the stability of Peru's monetary policy. The project in question aims to authorize the BCR to buy gold in the local market and imposes the obligation to maintain a minimum of 25 tons of this precious metal as part of its reserves. Currently, the BCR holds around 17 tons of gold, so if this initiative is approved, it would be forced to acquire another 250,000 ounces, representing a disbursement of over US$500 million. This forced purchase would lead the Central Bank to issue around S/2.000 million, which could trigger disastrous consequences for the Peruvian economy. An issuance of that magnitude could not only trigger an increase in inflation but also set a dangerous precedent that would open the door to future modifications in the gold holding requirements by the BCR. This could trigger an inflationary spiral, as the Central Bank would be forced to continue issuing currency to acquire more gold, increasing the amount of money in circulation and, consequently, inflationary pressure. It is crucial to understand that backing the currency with gold does not automatically guarantee economic stability. The true cornerstone lies in the demand for the currency and in the balance between monetary supply and demand. If the money supply exceeds the real demand of the economy, the currency's value will be affected, regardless of whether it is backed by gold or not. Another concerning aspect of this bill is that it could open the door to pressures from various sectors to further increase the gold holding requirements by the BCR in the future. This would jeopardize the autonomy of the Central Bank and its ability to carry out an independent monetary policy based on technical and objective criteria. If this initiative were to materialize, the BCR would be caught in a dynamic that could lead to losing control of the country's monetary policy. The possibility of this law being approved should be a cause for concern for all economic and political actors in Peru, as the consequences of such a measure could be disastrous for the country's economic and financial stability. In this sense, it is essential for the Government and competent authorities to act promptly and decisively to prevent this project from becoming law. If necessary, recourse should be made to the Constitutional Court to ensure that the principles of autonomy and independence of the Central Bank are respected and the country's economic stability is protected. In conclusion, Congressman Flores Ancachi's project represents a real threat to the independence and stability of the Central Reserve Bank. It is imperative to take the necessary measures to prevent this initiative from advancing and becoming law, as the consequences of its implementation could be catastrophic for the Peruvian economy as a whole. It is time to act responsibly and safeguard the fundamental pillars of our monetary policy.