The Mandate

In line with the Central Bank’s second objective, namely, to guarantee the normal functioning of the internal payments system, the institution must ensure the efficient management of the cash cycle.

Since its creation in 1925, the Bank has held the sole legal authority to issue banknotes and coins. There are currently five banknote denominations in Chile (1,000, 2,000, 5,000, 10,000, and 20,000 pesos) and four coin denominations (10, 50, 100, and 500 pesos). The one and five peso coins were withdrawn from circulation in November 2017.

The Bank is required to remove from circulation any damaged or mutilated banknotes and coins, which are destroyed under a strict security and accounting control process.

In 2018, the Bank satisfied virtually all the demand for cash from commercial banks, which in turn covered major distribution channels via automatic teller machines.

As in a many countries, cash continues to be the primary means of payment in recent years in terms of personal preferences. Consequently, the Bank must guarantee the timely supply of secure and trustworthy currency. This requires managing complex logistics, including international tenders for the manufacture of banknotes and coins and a highly secure storage and distribution system.

It is also critical to uphold public confidence in the currency. The Bank therefore implements a continuous information and training program aimed at preventing counterfeiting, via educational programs on the recognition of security features incorporated in the banknotes.

Commercial banks play an essential role in the cash cycle, given that they are the only intermediaries between the Central Bank and end users, whether these are private citizens, small business, or large corporations.

9.1. Operating Results

• Banknotes and coins issued increased 5.6% in annual terms, nearly two percentage points more than in 2017 (3.7%).
• The quantity of banknotes in circulation¹/ grew 1.9%, around the same rate as in 2017 (2.2%).
• This translated into an additional 18.5 million banknotes circulating in the economy.
• In the case of coins, the number of units issued grew 3.9%, which is lower than in 2017 (7.2%).²/This implied an increase of 300 million coins in circulation.
• As of December 2018, the total quantity issued and in circulation was 986.4 million banknotes and 7.9726 billion coins.
• As in past years, the $10,000 bill accounts for the largest share of banknotes in circulation, at 36.3%.
• The $20,000 bill continued to increase its share, reaching 23.9%, while $1,000 bill decreased relative to 2017, accounting for 27.4% of the total at year-end 2018.
• With regard to coins, the $10 is the most requested by commercial banks, with a total of 240 million coins delivered by the Central Bank over the course of 2018.
• To satisfy the demand for cash in 2018, the Bank distributed new banknotes and coins to the commercial banks, which were produced under existing contracts that were awarded following an international tender process. The banknotes issued in the year were printed in Germany, Malta, and Sweden; the coins were minted in Chile and the Netherlands.

^1/Excluding “miscellaneous banknotes,” comprising bills from the old family of denominations, $100 and $50 pesos.
^2/ Excluding $5, $1, and “other coins,” where the latter category comprises previously issued centavos and escudos that have not been returned to the Bank. Also excludes commemorative coins issued by the Bank in denominations of $10,000 and $2,000.
^3/ In accordance with the provisions of Law 20,956 on Productivity, which entered into effect in November 2017, the $1 and $5 coins ceased to be minted on that date and the process of removing them from circulation began, in conjunction with the introduction of a rounding rule for prices.

9.2 Withdrawal of the old 100 peso coins

In accordance with acquired experience and to facilitate the functionality of the coins in circulation for both the general public and coin machines, on 2 November 2018 the Bank began withdrawing from circulation the $100 coins issued from 1981 to 2001, removing those that are currently held by commercial banks and cash-in-transit companies. The goal is to gradually eliminate the coexistence of two coins in circulation that have the same face value, but completely different physical characteristics.

In late 2019, the Bank expects to complete the final sale of the metals from the $1, $5, and old $100 coins withdrawn from circulation, following a tender process open to national and international firms.

9.3 National Survey on Cash Use and Preferences

Since 2012, the Central Bank of Chile has carried out an uninterrupted annual National Survey on Cash Use and Preferences, to contribute to the knowledge and monitoring of the population’s use and preferences with regard to banknotes and coins

For the 2018 survey, the information was collected in person, using a closed-ended questionnaire, for a random sample⁴/ of 1,115 people⁵/ at the national urban level. The field work was carried out in October and November 2018 by a market research firm.

^4/ The sample unit is private citizens over 18 years of age in a given household, located in geographical areas in the main cities of the country. The survey also uses quotas for population segments based on age, sex, and socioeconomic level, which are weighted ex post.
^5/ Prior to 2016, the survey covered a sample of 800 individuals. The sample size was increased in 2016, due to a methodological change aimed at ensuring a geographically representative sample.

The survey was broken down by topic, including “Cash as a means of payment,” “Use of banknotes and coins,” “Quality,” and “Security.” The main findings from the 2018 survey are as follows:

1. i. Cash is still the preferred means of payment in Chile. Fully 77% of the people surveyed stated that they regularly use banknotes and coins for payment.⁶/
2. ii. Other means of payment are also widely used by the sample population, in particular debit cards. In the survey, 79% indicated that they use some form of debit transactions (a checking account, an electronic checking account, or an electronic checking account with the state-owned bank, BancoEstado, called Cuenta RUT), while 29% have nonbank credit cards and 26% have bank credit cards.
3. iii. In terms of frequency of use, 44% of the people surveyed stated that they regularly use debit cards, while only 8% and 6% regularly use bank and nonbank credit cards, respectively.
4. iv. Cash is most commonly used as a means of payment at small businesses, open-air markets, and kiosks, where 88% to 98% of the people surveyed pay for their purchases with banknotes and coins.

^6/ That is, 77% answered “Always” or “Almost always” to the question, How often do you use [means of payment]?

When controlling for the size of the transaction, the survey finds that cash is most commonly used for small amounts. Thus, 91% of the sample prefers to use cash for transactions of $5,000 pesos or less, whereas only 39% prefers cash for transactions of $50,000 pesos or more.

9.4 Logistics Center Project

In 2018, the Treasury Management continued to work actively on the development and construction of its new facilities, in the framework of the Logistics Center Project. This initiative aims to improve the Bank’s cash management processes, by increasing the efficiency of logistical operations and storage.

A site was purchased in the El Montijo Industrial Park, in the Renca neighborhood of the Santiago Metropolitan Region, and consultant studies were contracted and consucted on project logistics, security, structural engineering, soil mechanics, and strategic communications.

In 2018, the main consulting jobs continued to advance, and requests for information were sent to international suppliers of the necessary specialized equipment. Additionally, the basic engineering services were tendered and contracted, and the tender process was started for the main equipment for the Center.