Many of these lessons have been learned the hard way, through decades of macroeconomic mismanagement, and several costly experiences of currency and financial crises. Today, however, I would like to focus on the challenges to macroeconomic management faced by EMEs in the current global environment. Indeed, the two-speed recovery of the global economy is creating tensions in EMEs, putting pressure on macroeconomic management, in particular, in the context of inflationary pressures, capital inflows and currency appreciation. I will refer to these challenges, starting from monetary policy and exchange rate appreciation, to then move to financial stability issues. Inflation and currency appreciation The conduct of monetary policy by independent central banks with a clear mandate for price stability was central to allow for the implementation of countercyclical monetary policies in EMEs during the Great Recession. Today the appropriate stance of monetary policy must avoid the buildup of inflationary pressures in a world of rising commodity prices and economic activity close to full capacity in many EMEs. Failing to act decisively against inflation pressures will undermine credibility, with negative consequences on the ability to achieve stable inflation with low output costs in the future. Perhaps the main apprehension of policymakers in tightening monetary policy is the fear of further appreciation of their currencies. As monetary policy in advanced economies is expected to remain very expansionary for a prolonged period of time, many EMEs that have been tightening monetary policy have also experienced appreciation of their currencies.

José De Gregorio: Current challenges to central banking in emerging market economies Presentation by Mr José De Gregorio, Governor of the Central Bank of Chile, at the International Symposium of the Banque de France: Regulation in the Face of Global Imbalances, Paris, 4 March 2011. *  *  *  I am very grateful for comments and discussions with Rodrigo Cifuentes, Kevin Cowan, Luis Oscar Herrera, and Enrique Orellana. I am very grateful for the invitation to participate in this panel on Lessons from the Crisis on the Role of Central Banks. The crisis has revealed weaknesses in the functioning of financial markets and the regulatory and supervisory frameworks in several advanced economies, which went through years of credit expansion and leveraging that ultimately proved unsustainable. There are many lessons to be learned in order to reduce the likelihood of another crisis of this magnitude. Indeed, many of the policies implemented during the recent crisis, and which helped to avert a catastrophe, were lessons we learned from the Great Depression. But the recent episode has also revealed the strengths of policy frameworks and financial systems in emerging market economies (EMEs) that were able to successfully mitigate the effects of the worst global crisis since the Great Depression. Fiscal prudence, more autonomous central banks, low inflation, flexible exchange rates, and financial regulation and supervision, consistent with their lower degree of financial sophistication, were central to this unprecedented performance.