Page 14 of 20  Central Bank of Chile September 2019  The Central Bank is developing a new regulatory framework that will allow the real time gross settlement (RTGS) of interbank payments in U.S. dollars, through the incorporation of this currency in the RTGS system managed and operated by the CBC. The financial system’s large-value payments in national currency are currently settled in the RTGS system, where payments are final and irrevocable in accordance with international practices. In contrast, foreign currency payments are settled through correspondent banks, a process that is not exempt from credit, operational, and liquidity risk. The requirements of the new regulatory framework were defined taking into account international experience and risk considerations, after which the draft regulations will be published for public consultation within the next weeks. Dollar settlement at the CBC will improve the competitiveness of local infrastructures and promote the development of the financial market. Moreover, the implementation of this initiative will align local FMIs with international standards, which recommend settlement in RTGS systems due to their contribution to the risk management of participants, the functioning of the economy, and the preservation of financial stability. Page 15 of 20  Central Bank of Chile September 2019  Another initiative that it is currently under development is the incorporation of the Chilean Peso to the Continuous Linked Settlement System (CLS). This financial market infrastructure is currently the international standard for the settlement of cross-currency payments because reduces the risk of settlement, also known as Hersttat Risk, to barely zero.

Larger companies, on the other hand, can draw on the openness of the economy and the prestige of local regulations to take advantage of the overseas bond market while avoiding undertaking FX risk. Corporations have learned to operate in a flexible FX environment by using both, natural and market-based FX risk hedging instruments. This, in turn, has also been supported by the development of the derivatives market, in which Pension Funds have been key counterparts as well. Page 7 of 20  Central Bank of Chile September 2019  Total external debt in dollars has been stable over the last few years, at around $ billion. A substantial part of this reflects the growing internationalization of the Chilean corporate sector. A large share of that total is associated with foreign direct investment (FDI) on local subsidiaries of multinational corporations. To the extent that FDI represents a commitment between related companies, the enforceability of debt repayment and the associated financial conditions respond to different factors than in the case of debt with other institutions, which mitigates risk in the event of an increase in financing costs. Among firms that report to the FMC, two-thirds of external debt is concentrated among companies that use the U.S. dollar as their accounting currency, this share has been stable over the last decade. Learning from previous episodes, the risks associated with external debt remain low, given the characteristics of the debt and an appropriate use of hedging by the firms.