The Basic Constitutional Act of the Central Bank of Chile (Law 18,840, published in 1989) grants the institution technical and equity autonomy and establishes its objectives and functions, summarized below.

The 2018–2022 Strategic Plan defines the Bank’s mission as the objectives established in its Basic Constitutional Act, in terms of price stability and the stability of the financial system. To achieve these objectives, it establishes the Bank’s vision.

2.1 Evolution of the Central Bank´s Legal Functions

Over the course of time, the Central Bank of Chile has undergone a number of changes in its role, functions, and management mechanisms.

1925

Decree Law 486 of 22 August, passed under President Arturo Alessandri Palma, created the Central Bank of Chile. The initiative was one of the projects presented that year by the Kemmerer mission, contracted by the government to restructure the Chilean monetary and financial system.

1926

The Central Bank opened its doors to the public with nominal equity of 150 million pesos, of which approximately 13% was contributed by the state, 40% by national and foreign commercial banks operating in Chile, and the remaining 47% by public subscription of shares. Its main functions were monetary.

1953

Decree with Force of Law 106 was published, replacing the previous Basic Act. Under the new law, the Central Bank was established as a permanent autonomous institution, whose fundamental objective was “to promote the orderly and progressive development of the national economy through a monetary and credit policy that, by avoiding inflationary or recessionary trends, supports the more efficient use of the country’s productive resources.”

TO BE A TRUSTWORTHY TECHNICAL INSTITUTION, KNOWN FOR ITS HIGH STANDARDS IN CHIEVING ITS INSTITUTIONAL OBJECTIVES

1960

The Third Basic Act was published, maintaining the same objective for the Central Bank as the prior legislation while introducing a number of modifications. These included changing the composition and appointment of the Board Members; creating the Executive Committee, made up of the Central Bank Governor, Deputy Governor, and General Manager; and expanding the Bank’s authority to control credit.

1975

With the passing of the fourth Basic Act, the Monetary Board, a ministerial-level body, was created for the purpose of establishing monetary, credit, capital market, foreign trade, tariff, foreign currency, and saving policies, in accordance with guidelines issued by the Executive Branch. In addition, the Central Bank became an autonomous public-law institution that was managed independently from the state and was granted its own equity. This new law also expressly gave the Central Bank the power to grant loans to the General Treasury, pursuant to special laws.

1979

The Constitutional Act was modified to establish that under no circumstance can the Central Bank acquire, in the name of the institution, discount promissory notes or other debt instruments issued directly by the General Treasury of Chile, nor can it lend directly to firms or other public or private entities, with the exception of financial institutions.

1981

The Constitution of Chile established the constitutional status to the existence of an autonomous Central Bank. At the same time, it defined the Central Bank as a technical body with its own equity, whose composition, organization, functions, and powers must be determined via a basic constitutional act. In Article 109, the Charter establishes that the Central Bank can only conduct operations with public or private financial entities, although it cannot provide their guarantee. It further establishes that the Central Bank cannot acquire securities issued by the state, government bodies, or publicly owned companies and that it cannot finance any public expenditures, unless the National Security Council considers that the country is engaged in a foreign war or in danger of becoming so engaged.

1989

Law 18,840 was published, wherein the first article established the text of the Basic Constitutional Act of Central Bank of Chile and inaugurated the first Board of the autonomous Central Bank, chaired by Andrés Bianchi and comprising Board Members Alfonso Serrano, Roberto Zahler, Enrique Seguel, and Juan Eduardo Herrera.

That year, the Central Bank began to apply policies that led to a reduction of inflation to levels fluctuating around 3% annually.

2.2 Highlights in 2018

January

A new scheme was implemented for monetary policy decision-making and diffusion, reducing the number of Monetary Policy Meetings in the year from twelve to eight and modifying the press release on each meeting and the structure of the minutes. This is one of the first concrete applications of the 2018–2022 Strategic Plan.

The National Financial Education Strategy was approved. The Bank participated actively in the formulation of the strategy, in conjunction with representatives from five ministries and seven public institutions.

February

The withdrawal of the $1 and $5 peso coins from circulation was successfully concluded, together with the introduction of a rounding rule for prices. The process, which was initiated in November of the previous year, exceeded international standards for similar operations.

March

Publication began for a number of new statistical series, associated with the securities market, foreign direct investment by region, and the spliced series for the mining and nonmining Imacec and regional GDP.

The full records were published for 96 Monetary Policy Meetings held in 2000–2007, in compliance with a decision to increase public transparency and as a contribution to a study on the country’s economic history.

The Board visited various cities around the country, not only to present and discuss the main contents of the Monetary Policy Report, but also to raise awareness on the purpose and objective of the Central Bank. During the year, there were 15 regional meetings in different cities around the country.

April

The Central Bank Governor, Mario Marcel, inaugurated the finished restoration of the building façade, which took 16 months and represented the most significant repair work since the 1940s.

May

In May, the Financial Stability Report was published and released independently of the Monetary Policy Report, in a return to the publication schedule implemented through 2009. This allowed the Bank to raise the profile of this report on financial risk monitoring and to reach new audiences.

As in years past, the Central Bank participated in the National Heritage Day. A total of 3,150 people visited the Bank, where they received a guided tour led by employees and some higher-level executives, including the Governor.

July

As a result of a joint initiative with the University of Chile and the Millennium Institute, run by the university’s Mathematics and Physical Sciences Department, the Bank launched an online course entitled City of Opportunities, aimed at high school teachers throughout the country. Three hundred accredited teachers participated in the first course.

August

As one of the decisions made in the context of the Five-year Strategic Plan, a new organizational structure was designed for the Bank, with the goal of streamlining the decision-making process and empowering the different units within the Bank. The new structure increases the number of divisions from five to seven and creates a Corporate Risk Management and a specialized Cybersecurity Department.

September

At the presentation of the Monetary Policy Report to the full Senate in Valparaíso, the Central Bank Governor, Mario Marcel, announced that a panel of renowned world experts in central banking was being convened to evaluate the Bank’s performance in terms of compliance with the mandates of its Basic Constitutional Act. The panel was appointed in December.

The Bank published the results of the new Household Finance Survey (HFS), conducted in 2017. This survey provides detailed data on Chilean households’ financial position, indebtedness, assets, savings, possessions, and use of payment means.

The Bank created a Technology Observatory, to provide an efficient tool for capturing and diffusing knowledge on disruptive technologies, as well as to detect opportunities and potential impacts in specific business areas.

October

At its Monetary Policy Meeting, the Central Bank Board agreed unanimously to increase the monetary policy interest rate by 25 basis points, to 2.75%, thereby launching the process of reducing the monetary stimulus, after a long period of expansionary policy.

November

The Bank began the gradual withdrawal from circulation of the old 100 peso coins that are currently held by commercial banks and cash-in-transit companies, in order to reduce the coexistence of two coins with the same denomination.

The Financial Stability Report for the second half included a new chapter on the Residential Real Estate Sector and Financial Stability, which covers several aspects of the residential real estate market, with a focus on developments in the last decade and their implications for financial stability.

December

In conjunction with the last Monetary Policy Report of the year, the Bank published the supplement, Labor Market: Stylized Facts and Macroeconomic Implications.

2.3 Value Creation Model