the way the latter works in a developing country, including its role in the transmission of monetary policy. then i will identify which features of fintech development can have a greater influence on central banking, financial stability and financial deepening. from here i will highlight some dilemmas that central banks and regulators face central bank of chile 29 june, 2017 in dealing with fintech in developing countries. finally, i will summarize some features of the chilean economy that, i believe, may help resolve them. slide 1 agenda 1. how a central bank faces the world 2. what difference can fintech make? 3. common dilemmas for central bankers and regulators 4. fintech and features of the chilean economy a central bank view of the world a few years ago, when i was budget director in chile and talked to my colleagues from different countries i thought that budget officials were more or less the same everywhere. that was because i didn ’ t know central bankers yet. central banks face similar objectives and use similar tools all over the world. moreover, economic thinking and policy development since the aftermath of the asian crisis have made them look even more alike. [ slide 2 ] first, almost all central banks have inflation control and financial stability as their core goals. some may add employment, growth or even welfare objectives, but as long as the latter are correlated with the former most of the time, they don ’ t make much of a difference. to meet the twin core objectives, central banks apply monetary policy and macro financial regulations, like liquidity, reserve and capital requirements. monetary policy and macro stability regulations operate through the financial system, particularly banks. most of money in the economy is currently made of deposits that result from the maturity transformation — from short - term deposits into medium term loans — that banks perform. banks meet their liquidity needs for disbursement and reserve requirements by borrowing from the central bank. monetary policy is then operationalized by setting the rate at which commercial banks can store or withdraw money from the central bank. central bank of chile 29 june, 2017 slide 2 central bank functions and tools ▪ monetary policy and macro regulations operate through the financial system, particularly banks ▪ most of money in the economy is currently made of bank deposits ▪ banks resolve their liquidity needs — emerging from disbursement and reserve requirements — by borrowing from the central bank ▪ monetary policy is then operationalized by setting the rate at which commercial banks can store or withdraw money from the central bank [ slide 3 ] today

i ) increased market efficiency, in particular for real time gross settlement ( rtgs ) among large financial institutions, ( ii ) enhanced risk measurement of each bank and a more transparent financial system, ( iii ) lower trade costs, robustness against cyber - attacks, and less need for collateral, ( iv ) a stronger wealth - channel for monetary policy if more agents access financial assets and loans. similarly, crowdfunding and p2p reduce systemic risk since they do not involve money creation through the conventional multiplier / maturity transformation mechanism of banks. while this may significantly limit the scale at which operations can develop, they can be an affordable alternative for businesses that are not covered by conventional financial institutions. fintech market support tools can also contribute to financial stability to the extent that they can mobilize a larger volume of information to better assess credit risk and to mitigate it through smart contracts, guarantees and collateral. central bank of chile 29 june, 2017 slide 14 risks ▪ new systems may have unknown weaknesses that are not apparent in the trials — “ flash crashes ” ▪ pressures for users of automated payments and transfers systems — “ smart contracts ” ▪ cryptocurrencies poses a number of challenges to financial systems and central banks alike ▪ perhaps the greatest risk of fintech is that of cybersecurity risks [ slide 14 ] fintech developments also pose a number of risks for financial stability and monetary policy. in the case of financial infrastructures new systems may have unknown weaknesses that are not apparent in the trials, leading to financial disruption and critical episodes such as “ flash crashes ”. retail payment systems may add credit risks during offline operations and transparency issues in prepaid systems. users of payments and transfers systems may also be pressed to undertake unwanted credit operations, while “ smart contracts ” that are automatically executed may enhance instability if the system fails to check the solvency of each counterpart. algorithm - based credit assessments may generate biases in the access to financial products and replace know - your - client approaches, increasing transactional costs and engendering volatility and herd behavior. uninsured deposittaking is an area of particular concern due to its exposure to fraud. the emergence of cryptocurrencies poses a number of challenges to financial systems and central banks alike. the main risks in the use of dlt - blockchain technology to support privately issued currencies lie in the monitoring of money aggregates, the potentially damaging volatility of rates of exchange, the broader risk of