central bank of chile july 2019 xxiii annual conference of the central bank of chile opening remarks by mario marcel, governor of the central bank of chile “ public trust and central banking ” july 15, 2019 – the ritz carlton hotel, santiago, chile dear colleagues and friends, distinguished guests : welcome to the xxiii annual conference of the central bank of chile. since 1997, the central bank of chile has been convening prominent scholars and policymakers to this conference to discuss major issues in central banking and their implications for emerging economies. this version is no exception ; fresh and thoughtful research will support discussion over the next two days. we thank and welcome all participants, including representatives from 21 central banks around the world. the annual conference this year has some features that make it special. first, it will be held backto - back with the imf - cbc - imfer summer conference on “ current policy challenges facing emerging markets ”, so we expect many of you to stay in santiago longer than usual, for a full week of rich discussions. second, this year we commemorate 30 years of independence of the central bank of chile, so we have devoted our annual conference to revisit the achievements and challenges of central bank independence around the globe. central bank independence : achievements, challenges and threats central bank independence is one of the most remarkable pieces of institutional architecture fostered by economic thinking in the last half century. theoretical studies in the 1980s stressed central bank independence as a precondition to bringing inflation under lasting control, and support for reform soon spread from academia to policymaking. professor kenneth rogoff, was a major contributor to this process, so we are privileged to have him as keynote speaker at this conference. central bank independence delivered upon expectations. as the countries with independent central banks grew to nearly 70 in recent years, average world inflation dropped to 4 %, from more than 25 % 30 years ago. empirical studies are pretty conclusive on a strong correlation between central bank independence and low and stable inflation after controlling for other variables. the central bank of chile, as one of the pioneers of this remarkable process in the emerging world, provides a good example of the merits of institutional independence. independence of the cbc ended 40 years of double - digit inflation and coincided with the return to democratic rule in 1990. inflation fell from almost 30 % to 3 % through the 1990s while the economy expanded at an annual average 6 % in the decade, doubling the average for the previous 40 years. this provided legitimacy,

necessary as well. assessing trust on a central bank by inserting a question in an opinion survey suffers from the same limitations as with government institutions and a few more. answers to a broad question may be more reflective of prejudice than of attitudes that may shape the response to future policy decisions or incoming information and may come too late in a process of social or market change to make any difference. in addition, page 5 of 8 central bank of chile july 2019 experience with opinion surveys in different countries has shown that no more than half of respondents have some basic knowledge of central banks. adopting a more systematic and rigorous approach to assessing trust in the central bank may not only help address these shortcomings but also to acknowledge the full diversity of its responsibilities. i have already noted research stressing the relevance of credibility for the effectiveness of monetary policy, but credibility and public trust may be equally important for financial stability, the issuing of currency, or the generation of statistics. moreover, one can conceive that trust across these functions could be somewhat connected. loss of trust from a misconceived financial intervention or from distorted statistics may spillover to the way stakeholders assess the credibility of monetary policy. to foster trust, a central bank must go beyond the conduct of monetary policy to focus on how to develop reliability, adaptability, integrity, openness and fairness in its different areas of work. in the context of central banking, reliability is not equivalent to a dovish monetary policy giving priority to shortsighted demands to stimulate the economy, but to do the proper balancing of risks to align monetary policy with long - run social welfare. it means acting in a coherent way, showing thorough decision - making, carefully explaining reasons and arguments behind every action, conducing predictable decisions, and running efficiently the central bank as an organization. for this, i consider essential a clear framework for monetary and financial policy, data - driven decision making, unquestionable technical capacity and statistics, and skillful crisis management. reliability of a central bank, in turn, can be assessed based on the accuracy of its projections, its ability to identify financial risks, the quality of its statistics and the safety of the domestic currency and payment systems. for adaptability, a central bank must develop its analytical skills to identify structural changes in the economy and emerging sources of risk, telling them apart from necessary innovation. to this end, it may need to deepen its knowledge of markets and agents, and to be on top of technological developments.