##s bank to materialize this in the next three years. we believe these policy actions, as well as those announced by the minister of finance in order to promote chile as a regional financial center, should greatly contribute to a more resilient financial sector, wider cross - border use of the chilean peso and a greater participation of non - residents in our fx market. the strategic planning 2018 - 2022 of the cbc includes a thorough review of its fx regulation. current fx regulations require most fx transactions to be executed through the “ formal exchange market ” — which is comprised by banks and some stockbrokers — and to be reported to the cbc. these two elements have remained largely unchanged since the capital account was opened 20 years ago. back then, re - imposing capital controls could not be ruled out, and that rationale underlies the somewhat cumbersome structure of the fx regulation. currently, while capital controls are still part of the regulatory toolbox, re - imposing them could only be considered during an exceptional situation. therefore, the cbc has decided to streamline its fx regulations and reduce the burden of compliance to the private sector, whenever possible, without affecting the quality of the statistical information or the capacity to act in an extreme scenario. the first part of this process, eliminating some of the existing reporting requirements, is about to be put out for public consultation. page 13 of 20 central bank of chile september 2019 modernizing fx transactions goes beyond a review of existing reporting requirements and the structure of the regulation. it also considers the review of long - standing policy definitions. one of those definitions is the restrictive regulation in terms of the currency denomination of fx transactions. the central bank ’ s law establishes that fx transactions cannot be denominated in clp unless authorized by the central bank. this faculty has been used only exceptionally, as it was seen as a tool to prevent the circumvention of capital controls. consequently, for instance, residents cannot grant clp denominated credits to non - residents ( but they can do so in foreign currency ). while this provision does not prevent transactions to occur, it adds transaction costs that may be preventing a wider cross - border use of the chilean peso. the cbc has implemented a free - floating exchange rate regime, in which the possibility of capital controls is extremely exceptional and even if applied this measure might not be effective to prevent circumvention. therefore the cbc is considering the extension of present transactions that are authorized to be den

: it amplified these shocks leading the country into the deepest economic and financial crisis in a generation. financial crises are abrupt, costly and protracted affairs, and the chilean financial crisis of the early eighties was no exception. this crisis is often placed among the top 25 most severe financial crises in modern history. page 2 of 20 central bank of chile september 2019 in 1981, annual output growth went from positive 9 % in the first quarter, to 0 % in the fourth quarter, and to minus 14 % in 1982. that same year, unemployment reached a record of 25 %, and businesses all over the country were seriously hampered, ultimately affecting their solvency. banking profitability went quickly to negative territory and the delinquency rate quadrupled to 15 % of the total portfolio, putting several banks at risk. several factors contributed to the deterioration of the macroeconomic environment in 1982. external interest rates rose, the availability of external credit decreased, and terms of trade worsened in the wake of the escalation of oil prices. this put enormous pressure on the chilean peso — which had been under a fixed exchange rate scheme since 1979. this regime broke down dramatically and spread to almost all business sectors, given large fx exposures, and heavily leveraged financial conglomerates. page 3 of 20 central bank of chile september 2019 all these factors interacted with one another to become an outright banking crisis. nevertheless, whatever the causes of the crisis, unsustainable debt was mostly explained by internal vulnerabilities : inappropriate regulation, weak supervision, and lack of attention to excessive credit growth, leveraged on a fixed exchange rate scheme. the lessons learned from this crisis highlighted the fact that banking regulation and supervision needed to be substantially upgraded. in 1986, the general banking law introduced limitations on currency mismatch, constraints on related party lending, and restrictions for banks to be paid in kind instead of liquid resources. all of these elements were common practice before the 1982 crisis. paradoxically, what could be considered harsher regulation did not hamper financial deepening. instead, it fostered a systematic buildup of solvency and credibility of the banking system and allowed its healthy development in the ensuing decades. yet the 1986 banking law was hardly the only piece of the financial architecture that changed significantly. notably, the creation of a funded pension system, and subsequent capital market reforms, together with capital market openness, dramatically changed the size, composition, depth, and strength of the financial sector in chile. page