development was the creation of a funded pension system, and subsequent capital market reforms, together with capital market openness, which dramatically changed the size, composition, depth, and strength of the financial sector in chile. now, during the transition toward fully implementing the current policy framework, chile experienced a period of capital control that have been highly reviewed in the literature. the unremunerated reserve requirement ( urr ) implemented in chile during the 1990s helped to change the composition of capital flows toward longer terms but was less effective in terms of reducing the aggregate level of capital flowing into the country. after removing the urr completely by the end of the 90s and allowing the exchange rate to fluctuate freely, the banking and corporate sector learned to operate in a completely different environment, characterized by an extensive used of the derivative market. in in particular, corporations have learned to operate in a flexible fx environment by using both, natural and market - based fx risk hedging instruments. this development has been supported by the development of the derivatives market, in which pension funds have been key counterparts as well. banking regulation, in turn, have result in limited currency mismatches at the bank level, which have made the introduction of new regulation to deal with fx risk unnecessary, as we have observed in many emerging market economies after the global financial crisis ( gfc ). while may be true that other emerging economies have been increasingly active in the implementation of cbm in their banking systems, in chile, we have followed a different approach to deal with fx risk at the banking level. this approach has been mainly characterized by limiting banks ’ direct fx - currency exposure ( limited currency mismatches ) as part of our overall capital requirements for market risk purposes. also, by acknowledging the potential indirect fx risk through the credit provisioning requirements. in fact, in chile, the main regulatory changes introduced has been the recent modification of the general banking law ( gbl ), which constitutes a major step forward for the local banking industry, in that it will contribute to reducing the gap with international regulatory standards established under basel iii. the new regulatory page 2 of 12 central bank of chile september 2019 framework raises important challenges for the industry in terms of compliance with the new, more demanding solvency requirements, especially for entities with a smaller capital cushion. high - level policy seminar on integration or fragmentation? international capital flows in the post - crisis world, september 2019 central bank of chile monetary policy framework and its effectiveness buffers used during the years

jose de gregorio : current challenges to central banking in emerging market economies presentation by mr jose 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. 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