2024News

Just what does the legal reserve mean in the Dominican Republic?

Late last week, there were headlines in all of the local newspapers that the Central Bank of the Dominican Republic was “releasing [billions of pesos] from the legal reserve.” Some of this money, RD$35 billion, was destined to the housing and construction sector for low and medium-income housing projects. But just what is the “legal reserve?”

The “legal reserve” is a requirement imposed by the Central Bank on all financial institutions which requires them to maintain a certain amount of the money deposited by their clients in reserve. It is a move designed to provide stability to the local monetary system.

In the Dominican Republic, commercial banks, like Popular, Reservas or BHD are required to keep 10.6% of their deposits in pesos on hand in this special legal reserve, and 20% of their deposits in dollars are also required. These requirements can vary according to the needs of the Dominican monetary system.

Of the recently announced RD$35 billion released for housing construction, 40% is aimed at low-cost housing, and the other 60% will go towards new home construction and stand-by loans.

The legal reserve can be seen as a useful tool for the Central Bank to regulate the flow of money within the system. For example, during the Covid-19 pandemic, the Central Bank used some of these funds to promote the successful economic recovery of the local economy.

Read more in Spanish:
El Caribe
El Caribe

2 December 2024