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The Central Bank of Chile ( es, Banco Central de Chile) is the
Working Paper No. 345, Central Bank of Chile (2005). Inflation, however, did not recede. Moreover, it was further heightened by a weak institutional framework. Inflation would only be controlled after the introduction of autonomy of constitutional rank in 1989.
The CBoC is granted autonomous status by Chile's National Constitution, in order to secure independence from national authorities, providing credibility and stability beyond the political cycle. According to the Basic Constitutional Act of the Central Bank of Chile (Law 18,840), its main objectives are to safeguard "the stability of the currency and the normal functioning of internal and external payments".
, Title I, Section 3. Therefore, the CBoC needs to control inflation to foster a stable currency, while the payment system's normality requires functional financial intermediation, the provision of payment services and adequate risk allocation. To meet these objectives, the CBoC is enabled to use monetary and foreign exchange policy instruments, along with some discretion on financial and capital markets regulation. The CBoC is governed by a Board composed of five members appointed by the president, but ratified by the senate. Each term is ten years long and members are chosen in a staggered way every two years. The president appoints the Governor of the Board (and the bank) from existing members, for the minimum between the chosen member's remaining term and five years. At least three members need to be present for the board to operate and measures are adopted with the support of the majority of present members. The Minister of Finance also participates in board meetings with the right to speak and, unless there is full consensus among board members, can suspend board resolutions for 15 days.
Central Bank of Chile, January 2007. Decisions on the monetary policy rate (MPR), the reference interest rate for the economy, usually take place on a monthly basis in the monetary policy meetings, although extraordinary meetings can be called. If inflation expectations are diverging from the 3% target or if there are events since the previous meeting with an anticipated effect in the price level, the CBoC might change the MPR. The monetary policy is carried out through the daily interbank interest rate. Inflation has followed a relatively stable trajectory since the inception of the targeting regime, remaining under 10% ever since; yearly inflation only surpassed the tolerability threshold of 4% in 2007 and 2008, with respective readings of 4.4% and 8.7% in historical terms. The foreign exchange policy is led by a floating exchange rate, although the bank reserves the right to intervene in the foreign exchange markets. Although unusual, the CBoC has used announced interventions on four occasions since 1999, when the economy transitioned to a floating exchange rate scheme, all of which were sterilized. Twice, in August 2001 and in October 2002, the central bank intervened to deter a depreciation, while the remaining two events, announced in April 2008 and January 2011, were aimed at strengthening the international reserves position of the bank through daily and pre-announced dollar purchases.Central Bank of Chile, Press Release
January 3, 2011.
central bank
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union,
and oversees their commercial banking system. In contrast to a commercial bank, a central b ...
of Chile
Chile, officially the Republic of Chile, is a country in the western part of South America. It is the southernmost country in the world, and the closest to Antarctica, occupying a long and narrow strip of land between the Andes to the east a ...
. It was established in 1925 and is incorporated into the current Chilean Constitution as an autonomous institution of constitutional rank. Its monetary policy is currently guided by an inflation targeting
In macroeconomics, inflation targeting is a monetary policy where a central bank follows an explicit target for the inflation rate for the medium-term and announces this inflation target to the public. The assumption is that the best that moneta ...
regime.
History
Starting in the mid-19th century, private banks started to thrive in Chile, spurring growing concerns over the control of payment methods and persistent inflation. To this end, the government hired a mission led by economics professor Edwin Kemmerer of Princeton University and based the nascent central bank's structure in one of the mission proposals. In August 1925, the Central Bank of Chile (CBoC) was created through Decree Law 486, which also established the bank's monopoly for issuing bank notes under a gold standard regime. A degree of independence to avoid capture by the public or private sectors was implicit in its ten-member board structure.Corbo, Vittorio, and Leonardo Hernández. "Ochenta años de historia del Banco Central de Chile."Working Paper No. 345, Central Bank of Chile (2005). Inflation, however, did not recede. Moreover, it was further heightened by a weak institutional framework. Inflation would only be controlled after the introduction of autonomy of constitutional rank in 1989.
Institutional framework
The CBoC is granted autonomous status by Chile's National Constitution, in order to secure independence from national authorities, providing credibility and stability beyond the political cycle. According to the Basic Constitutional Act of the Central Bank of Chile (Law 18,840), its main objectives are to safeguard "the stability of the currency and the normal functioning of internal and external payments"., Title I, Section 3. Therefore, the CBoC needs to control inflation to foster a stable currency, while the payment system's normality requires functional financial intermediation, the provision of payment services and adequate risk allocation. To meet these objectives, the CBoC is enabled to use monetary and foreign exchange policy instruments, along with some discretion on financial and capital markets regulation. The CBoC is governed by a Board composed of five members appointed by the president, but ratified by the senate. Each term is ten years long and members are chosen in a staggered way every two years. The president appoints the Governor of the Board (and the bank) from existing members, for the minimum between the chosen member's remaining term and five years. At least three members need to be present for the board to operate and measures are adopted with the support of the majority of present members. The Minister of Finance also participates in board meetings with the right to speak and, unless there is full consensus among board members, can suspend board resolutions for 15 days.
Policies
The CBoC is Chile's monetary authority and its monetary policy is guided by an inflation targeting regime, which is fully in place since 1999. Specifically, the CBoC pursues an inflation target of 3%, with a tolerance range of 1% (above or below), with the objective of anchoring market expectations in a two-year horizon.Central Bank of Chile, January 2007. Decisions on the monetary policy rate (MPR), the reference interest rate for the economy, usually take place on a monthly basis in the monetary policy meetings, although extraordinary meetings can be called. If inflation expectations are diverging from the 3% target or if there are events since the previous meeting with an anticipated effect in the price level, the CBoC might change the MPR. The monetary policy is carried out through the daily interbank interest rate. Inflation has followed a relatively stable trajectory since the inception of the targeting regime, remaining under 10% ever since; yearly inflation only surpassed the tolerability threshold of 4% in 2007 and 2008, with respective readings of 4.4% and 8.7% in historical terms. The foreign exchange policy is led by a floating exchange rate, although the bank reserves the right to intervene in the foreign exchange markets. Although unusual, the CBoC has used announced interventions on four occasions since 1999, when the economy transitioned to a floating exchange rate scheme, all of which were sterilized. Twice, in August 2001 and in October 2002, the central bank intervened to deter a depreciation, while the remaining two events, announced in April 2008 and January 2011, were aimed at strengthening the international reserves position of the bank through daily and pre-announced dollar purchases.
January 3, 2011.
List of governors
See also
* Chilean peso *Economic history of Chile
The economy of Chile has shifted substantially over time from the heterogeneous economies of the diverse indigenous peoples to an early husbandry-oriented economy and finally to one of raw material export and a large service sector. Chile's recent ...
* Economy of Chile
The Economy of Chile is a market economy and high-income economy as ranked by the World Bank. The country is considered one of South America's most prosperous nations, leading the region in competitiveness, income per capita, globalization, eco ...
* Ministry of Finance of Chile
References
External links
* {{Authority control 1925 establishments in Chile Banks established in 1925 Banks of ChileChile
Chile, officially the Republic of Chile, is a country in the western part of South America. It is the southernmost country in the world, and the closest to Antarctica, occupying a long and narrow strip of land between the Andes to the east a ...
Government of Chile
1925 in Chilean law