The shorter the residual term, the more liquid the investment appeared to be. Consequently, until well into the 1990s, the SNB’s foreign exchange reserves consisted almost exclusively of government paper with very short terms. 2  BIS central bankers’ speeches  With time, the concept of liquidity has changed. For a long time now, we have been defining liquidity according to the potential for a rapid sale with the minimum possible impact on the market, rather than as a function of the terms of our bonds. In this case, minimum impact on the market means that, essentially, we wish to avoid significant price movements. In order to guarantee this, we hold a substantial portion of the currency reserves in liquid government bonds, in the most important global currencies. Together with our deposits at other central banks, these investments presently account for some three-quarters of our foreign exchange reserves. You can see the current breakdown of our foreign exchange reserves on the lefthand side of slide 3. For the criterion of security, the focus is on limiting market and credit risk. In this case, the decisive role is played by diversification across different currencies and instruments. We engage in currency diversification by holding our foreign exchange reserves in the currencies of all large advanced economies; the highest percentages are accounted for by the euro (48%) and the US dollar (27%), as you can see from the chart on the right-hand side of slide 3. Looking at the individual currencies, diversification occurs via the different investment instruments.

The empirical literature on the Chilean case provides evidence of a negative correlation between the pass-through coefficient of nominal depreciations to inflation and the credibility of the Central Bank. Said credibility is fundamental to allowing the real exchange rate to contribute in the adjustments of the economy. As for recent developments, the evidence shows that more autonomous central banks have implemented more aggressive monetary expansions (Figure 3). Conclusions Twenty years into the era of autonomy of the Central Bank of Chile, we can say that it has succeeded and it is consolidated. There remain challenges ahead. The evolution of the economy in the past few years has raised issues that need to be further analyzed to improve the policy framework. An objective look at reality – acknowledging the personal conflicts of interests I have in acting as an independent referee – shows that our country’s current monetary policy has succeeded as never before. The business cycle has been smoothed and low inflation has been consolidated. Inflationary expectations have stabilized and it is possible to implement a truly countercyclical monetary policy. Of great support has been the accountable and predictable fiscal policy. The successes in the conduct of monetary policy owe to the work of many people. Many from outside the Bank have stressed the importance of its autonomy and its macroeconomic achievements, and have also made strong contributions to improving the conduct of monetary policy. This enables the consolidation of the institution. Many from within the Central Bank have contributed decisively as well.