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. not dealing with inflationary pressures in a timely manner, however, could result in economic overheating and rising inflation. most emerging markets have enjoyed great success from trade openness and export - led growth, and hence their worries arising from exchange rate appreciation are well justified. however, it is important to distinguish between real appreciation – the relevant variable from bis central bankers ’ speeches the competitiveness standpoint – and nominal appreciation. exchange rate actions that attempt to mitigate a real exchange rate appreciation will have only transitory effects, which could provide valuable time for the economy to adjust to a new global environment and might hence be relevant from the point of view of welfare, but cannot be thought of as a permanent tool to foster competitiveness. in order to sustain the real exchange rate, real actions need to be taken, such as increasing domestic savings. it is time to rebuild fiscal buffers in emerging market economies and accelerate the pace of reforms to achieve productivity gains that can sustain competitiveness. it is important to note that the economic strength of emes relative to advanced economies is the main reason why their real exchange rates are appreciating. in addition, the correction of global imbalances requires both an increase in consumption in surplus economies and a shift of this greater demand towards goods produced by advanced economies, especially since in the latter growth of domestic demand will be sluggish because of the post - crisis deleveraging process. relative price adjustments around the world should help this process. many emes have been trying to mitigate the appreciation through exchange rate intervention, with partial success. chile is one of the latest to join this group. others have sought the use of capital controls or macro - prudential regulations, not only for exchange rate reasons, but also to avoid the buildup of excessive market or liquidity risk associated to the foreign exchange position. in january this year we announced a program of reserves accumulation of 12 billion dollars, about 5 percent of gdp. this measure had a dual purpose. on the one hand, it would relieve some pressures on the exchange rate, facilitating the adjustment of the economy

of capital and would hit especially hard bankdependent firms and consumers while other borrowers would turn to other sources of financing. furthermore, the relatively high - frequency changes that managing macro bis central bankers ’ speeches conditions may require may create unnecessary policy - driven volatility in financial markets. all this indicates that it is more appropriate to tackle each goal with its own type of tool. the separation of the instruments does not necessarily mean that the achievement of the goals can be separated operationally. because of the dual causality of price and financial stability, monetary and financial policies should be explicitly coordinated. how this coordination is achieved varies across countries. at the very least, instances to monitor global risks to financial stability should exist. central banks should be involved in these monitoring instances ( or should centralize the monitoring and supervision functions ) because of their relative advantages in providing a macro view of the economy and their market contacts, due to the implementation of monetary operations. in addition regulation that could have systemic implications should be discussed in these instances. in the case of chile, the supervisory landmark is made up of three superintendencies ( including banks ). in this setting, coordination for systemic stability is achieved at two levels. one the one hand, the central bank is involved in several aspects of financial regulation directly by dictating regulation, or by participating in consultations with other agencies. on the other hand, the central bank participates in two coordination instances with the superintendents and finance ministry. the experience during the last years has shown that during periods of financial turmoil, mainly as result of external shocks, the central bank, the finance ministry, and the financial regulation agencies have indeed worked in close coordination, and, as the global financial crisis testifies, results have been positive. moreover, in chile, as banking supervision takes place outside the central bank it is key that it is not out of touch with the broader macro environment, so that financial system stance visa - vis the risks perceived in the macro - outlook is the natural first step in the supervisory process. recently, these instances have been formalized with the creation of a financial stability council, headed by the finance minister. this council will, amongst other things, identify systemic risks and mitigation policies, and discuss the systemic impact of regulation. summing up, monetary and prudential policies are closely connected, first because macroeconomic and financial stability are closely interlinked, and second because instruments designed to achieve stability in each front have cross effects. this