Central Bank of Chile
Encyclopedia
The Central Bank of Chile is the central bank
of Chile
. It was originally created in 1925 and is incorporated into the current Chilean Constitution as an autonomous institution of constitutional rank.
. This initiative arose as one of four projects presented that year by the Kemmerer mission. That mission, which was hired by the government of the time to restructure Chile’s monetary and financial system, was headed by Edwin Walter Kemmerer, professor of economics at the University of Princeton. The projects included the monetary law, which sought to stabilize the value of Chile’s currency and the gold standard as the basis of the country’s monetary unit, the creation of the Central Bank of Chile, the passing of the general banking law and the general budget law.
The same dispositions established in decree law No. 486 authorized the creation of an organizing commission for the Central Bank of Chile, whose express purpose was to develop the institutions necessary to ensure the functioning and management of this body, and bring it into being. Thus, the Central Bank of Chile opened its doors to the public on Monday, 11 January 1926. The institution began activities with a nominal capital of 150 million pesos, of which about 13% was contributed by the State, 40% by Chilean and foreign commercial banks operating in Chile and the remaining 47% by the public, through a share subscription.
and Francisco Garcés Gana, respectively. One fundamental aspect implicit in the functioning of the Central Bank of Chile, which resulted from how the board of directors had been constituted, was its ability to function autonomously and independently. From the legal point of view, this meant providing the institution with its own legal status, independent of the Government.
Despite this, the Central Bank of Chile remained subject to the general supervision of the Superintendent of Banks, created by the General Banking Law (Ley General de Bancos), whose original text was approved by decree law No. 559, of 26 September 1925. In this context, the objectives of the Central Bank of Chile were essentially of a monetary nature. In the first place, the Bank was to watch over the stability of the value of Chile’s currency under a fully convertible gold standard regime and, in the second place, it was to regulate currency according to the needs of the monetary market, for which the basic constitutional law assigned the Central Bank a monopoly on issuing bank notes. Finally, the law required that the Central Bank permanently hold a gold reserve equivalent to no less than 50% of total emission. If it were to fall below this limit, it would have to pay a fine to the state proportional to the deficit.
At this stage, then, the Central Bank began to play a more active role in developing the national economy, giving priority to the full employment of productive resources, without leaving aside its specifically monetary functions. In this sense, the new legal text empowered the Central Bank to grant credits to the State and other state bodies. Despite the authority granted to it to carry out these operations, the bank nonetheless was required to discount bills of exchange withdrawn by the Caja Autónoma de Amortización de la Deuda Pública (the body responsible for paying off public debt) and charged to the national treasury (Tesorero General de la República), in order to regularize state revenues.
Moreover, on this occasion, the presence of four parliamentarian representatives on the board of the Central Bank was ratified, and these were included during the period covered by the previous basic constitutional law. The Central Bank’s third basic constitutional law came into effect on 30 March 1960, through the decree with the force of law No. 247. This new law maintained the same objective assigned to the Central Bank in its previous legislation, but introduced several important modifications. Among others, it changed the composition and the form of appointing board members; it created the Executive Committee, consisting of the Bank governor, the vice-governor and the general manager, responsible for implementing the agreements reached by the board of directors and managing the institution; and it expanded the Bank’s powers in terms of controlling credit and setting the reserve requirements and its different forms.
Similarly, through the decree with the force of law No. 250, 30 March 1960, the Central Bank of Chile merged with the Foreign Exchange Commission (Comisión de Cambios Internacionales), thus empowering the Central Bank’s executive committee to dictate the general rules governing foreign trade and foreign exchange operations. The Central Bank’s fourth basic constitutional law came into force on 28 June 1975, through decree law No. 1,078. The most relevant aspects of this law include the following:
Finally, the basic constitutional law was amended by Article 27, DL No. 3001, of 27 December 1979, which established that in no case would the Central Bank be allowed to acquire for itself discount promissory notes from the General Treasury or other notes of credit issued directly by the State, and nor would it be able to provide credit directly to bodies or companies from the private or public sectors, with the exception of financial institutions.
Nonetheless, legislators also established a constitutional rule, contained in Article 98 of the Constitution, that this institution could only carry out operations with public and private financial bodies. The Central Bank cannot guarantee nor acquire documents issued by the State, its bodies or companies. Nor can it adopt agreements that involve discrimination or the establishment of rules and requirements that differentiate among persons, institutions or bodies carrying out operations of the same nature, nor can it directly or indirectly finance any public expenditure or loan, except in the case of external war or danger thereof, which must be so qualified by the National Security Council.
In line with the above, on 10 October 1989, Law 18,840 came into effect. Its first article established the text of the basic constitutional law of the Central Bank of Chile. Essentially, along with confirming the Bank's independence in technical and financial (equity) terms, this law also defined the objectives to be pursued by this institution: to ensure the stability of the value of the national currency and the normal functioning of domestic and foreign payments. To achieve these objectives, a suitable macroeconomic balance must be maintained within the formulation of all policies to be projected in time.
With regard to the technical nature of the Central Bank's autonomy, this referred essentially to its ability to establish its own agreements and make its own technical decisions while exercising its attributes. Similarly, from the point of view of equity, the Central Bank is also autonomous, since the law granted it its own equity, which can be managed completely independently of the executive branch.
As a result of the autonomy granted by law, the Central Bank is not subject to supervision by the General Comptroller of the Republic nor the Superintendent of Banks and Financial Institutions. Nor does it form part of the state administration and it is governed exclusively by its own rules, included in its basic constitutional law and some specific clauses included in the general banking law, and it also enjoys sole faculty for the administrative interpretation of its decisions, regulations, orders or instructions, notwithstanding the legal attributes of judicial bodies.
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
of Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
. It was originally created in 1925 and is incorporated into the current Chilean Constitution as an autonomous institution of constitutional rank.
History
The Central Bank of Chile was created by decree law No. 486, of 21 August 1925, under the government of President Arturo AlessandriArturo Alessandri
Arturo Fortunato Alessandri Palma was a Chilean political figure and reformer, who served twice as the President of Chile, first between 1920 and 1924, and then again in 1925, and finally from 1932 until 1938....
. This initiative arose as one of four projects presented that year by the Kemmerer mission. That mission, which was hired by the government of the time to restructure Chile’s monetary and financial system, was headed by Edwin Walter Kemmerer, professor of economics at the University of Princeton. The projects included the monetary law, which sought to stabilize the value of Chile’s currency and the gold standard as the basis of the country’s monetary unit, the creation of the Central Bank of Chile, the passing of the general banking law and the general budget law.
The same dispositions established in decree law No. 486 authorized the creation of an organizing commission for the Central Bank of Chile, whose express purpose was to develop the institutions necessary to ensure the functioning and management of this body, and bring it into being. Thus, the Central Bank of Chile opened its doors to the public on Monday, 11 January 1926. The institution began activities with a nominal capital of 150 million pesos, of which about 13% was contributed by the State, 40% by Chilean and foreign commercial banks operating in Chile and the remaining 47% by the public, through a share subscription.
Organization
Ten people made up the new institution’s board of directors. The President of the Republic had the right to name three, Chilean commercial banks two, foreign banks one, representative associations three, and the shareholding public one. This same board was empowered to appoint the governor and vice-governor of the Bank, with the first officers being Ismael TocornalIsmael Tocornal
Ismael Tocornal Tocornal, GCMG was a Chilean politician and diplomat, and the first Governor of the Central Bank of Chile....
and Francisco Garcés Gana, respectively. One fundamental aspect implicit in the functioning of the Central Bank of Chile, which resulted from how the board of directors had been constituted, was its ability to function autonomously and independently. From the legal point of view, this meant providing the institution with its own legal status, independent of the Government.
Despite this, the Central Bank of Chile remained subject to the general supervision of the Superintendent of Banks, created by the General Banking Law (Ley General de Bancos), whose original text was approved by decree law No. 559, of 26 September 1925. In this context, the objectives of the Central Bank of Chile were essentially of a monetary nature. In the first place, the Bank was to watch over the stability of the value of Chile’s currency under a fully convertible gold standard regime and, in the second place, it was to regulate currency according to the needs of the monetary market, for which the basic constitutional law assigned the Central Bank a monopoly on issuing bank notes. Finally, the law required that the Central Bank permanently hold a gold reserve equivalent to no less than 50% of total emission. If it were to fall below this limit, it would have to pay a fine to the state proportional to the deficit.
Historical development
The first basic constitutional law of the Central Bank was in force until July 1953, when the decree with the force of law (Decreto con fuerza de Ley) No. 106 was approved, giving rise to the second basic constitutional law of the Bank. This new law treated the Central Bank as an autonomous institution of indefinite duration, whose fundamental objective was to “encourage the orderly and progressive development of the national economy through credit and monetary policy, avoiding any inflationary or depressive tendencies, and thus permitting the maximum use of the country’s productive resources.”At this stage, then, the Central Bank began to play a more active role in developing the national economy, giving priority to the full employment of productive resources, without leaving aside its specifically monetary functions. In this sense, the new legal text empowered the Central Bank to grant credits to the State and other state bodies. Despite the authority granted to it to carry out these operations, the bank nonetheless was required to discount bills of exchange withdrawn by the Caja Autónoma de Amortización de la Deuda Pública (the body responsible for paying off public debt) and charged to the national treasury (Tesorero General de la República), in order to regularize state revenues.
Moreover, on this occasion, the presence of four parliamentarian representatives on the board of the Central Bank was ratified, and these were included during the period covered by the previous basic constitutional law. The Central Bank’s third basic constitutional law came into effect on 30 March 1960, through the decree with the force of law No. 247. This new law maintained the same objective assigned to the Central Bank in its previous legislation, but introduced several important modifications. Among others, it changed the composition and the form of appointing board members; it created the Executive Committee, consisting of the Bank governor, the vice-governor and the general manager, responsible for implementing the agreements reached by the board of directors and managing the institution; and it expanded the Bank’s powers in terms of controlling credit and setting the reserve requirements and its different forms.
Similarly, through the decree with the force of law No. 250, 30 March 1960, the Central Bank of Chile merged with the Foreign Exchange Commission (Comisión de Cambios Internacionales), thus empowering the Central Bank’s executive committee to dictate the general rules governing foreign trade and foreign exchange operations. The Central Bank’s fourth basic constitutional law came into force on 28 June 1975, through decree law No. 1,078. The most relevant aspects of this law include the following:
- a) The Monetary Council was created, as a body of ministerial rank, responsible for establishing policy governing monetary, credit, capital market, foreign trade and customs, foreign exchange, and saving operations, in line with the rules established by the Executive (national presidency).
- b) The Central Bank became an autonomous institution under public law, which can only carry out those operations for which it has been expressly empowered, but which does not form part of the State administration, so in the case of any matters not covered by its basic constitutional law, the Bank and its personnel were to be ruled by private sector regulations
- c) The objective of the Central Bank was to ensure the orderly and progressive development of the national economy, through policies governing monetary, credit, capital markets, foreign trade and foreign exchange, saving and other operations, as referred to by law.
- d) The Central Bank was provided with its own capital, which ceased to be divided into Class A (State), B (Chilean banks), C (foreign banks’ branches) and D (public) shares, with an expropriation procedure established in the case of classes B, C, and D shares in the case of these not being acquired by the Central Bank through agreement with their owners.
- e) The Central Bank was expressly empowered to grant credits to the State by virtue of special laws, but in any case it was established that the credits granted during a calendar year could not exceed the maximum of fiscal borrowing from the Bank established by the Monetary Council for that same year.
Finally, the basic constitutional law was amended by Article 27, DL No. 3001, of 27 December 1979, which established that in no case would the Central Bank be allowed to acquire for itself discount promissory notes from the General Treasury or other notes of credit issued directly by the State, and nor would it be able to provide credit directly to bodies or companies from the private or public sectors, with the exception of financial institutions.
List of Governors
| Picture | Name | Entered Office | Exited Office | Notes |
 |
Ismael Tocornal Tocornal Ismael Tocornal Ismael Tocornal Tocornal, GCMG was a Chilean politician and diplomat, and the first Governor of the Central Bank of Chile.... |
1926 | † October 6, 1929 | |
| Emiliano Figueroa Larraín Emiliano Figueroa Emiliano Figueroa Larraín was President of Chile from December 23, 1925 until his resignation on May 10, 1927. He also served as Acting president for a few months on 1910.-Biography:... |
1929 | 1931 | ||
| Francisco Garcés Gana Francisco Garcés Francisco Hermenegildo Tomás Garcés was a Spanish Franciscan missionary who explored much of the southwestern part of North America, including what are now Arizona, southern California, and northeastern Baja California. Garcés was born April 12, 1738, in Morata de Jalón , Zaragoza province,... |
1931 | 1932 | ||
 |
Armando Jaramillo Valderrama | 1932 | 1933 | |
| Guillermo Subercaseaux Pérez | 1933 | 1939 | ||
| Marcial Mora Miranda Marcial Mora Marcial Mora was a Chilean politician.... |
1939 | 1940 | ||
| Enrique Oyarzún Mondaca | 1940 | 1946 | ||
| Manuel Trucco Franzani Manuel Trucco Manuel Trucco Franzani was a Chilean politician and provisional vice president of Chile in 1931.He was born in Cauquenes, the son of Napoleón Trucco Morano and of María Franzani Monigette. He completed his studies in his native city, and at the Instituto Nacional... |
1946 | 1951 | ||
| Arturo Maschke Tornero | 1953 | 1959 | ||
| Eduardo Figueroa Geisse | 1959 | 1961 | ||
| Luis Mackenna Shiell | 1962 | 1964 | ||
| Sergio Molina Silva | 1964 | 1967 | ||
 |
Carlos Massad Abud | 1967 | 1970 | |
| Alfonso Inostroza Cuevas | 1970 | 1973 | ||
| Carlos Matus Romo | June 2, 1973 | September 10, 1973 | ||
| Eduardo Cano Quijada | 1973 | 1975 | ||
| Pablo Baraona Urzúa | 1975 | 1976 | ||
| Alvaro Bardón Muñoz | 1977 | 1981 | ||
| Sergio de la Cuadra Fabres | 1981 | 1982 | ||
| Miguel Kast Rist Miguel Kast Miguel Kast Rist was a German born Chilean economist of the Chicago Boys group. He was most known for his role in public policies, where he promoted a greater focus of resources toward the needy.... |
April 23, 1982 | September 2, 1982 | ||
| Carlos Cáceres Contreras | September 3, 1982 | 1983 | ||
| Hernán Felipe Errázuriz Correa | 1983 | 1984 | ||
| Francisco Ibáñez Barceló Francisco Ibáñez Francisco Ibañez may refer to:*Francisco Ibáñez de Peralta , Spanish Royal Governor of Chile*Francisco Ibáñez Talavera , Spanish comic book artist and writer*Francisco Ibáñez Campos , Chilean footballer... |
1984 | 1985 | ||
| Enrique Seguel Morel | 1985 | April 2, 1989 | ||
| Manuel Concha Martínez Manuel Concha Manuel Concha, born 1980 in Malmö, is a Swedish film director of Chilean descent.After some 30 short films of which The decision and Moments was shown on Gothenburg Film Festival in 2003 Concha debuted in 2008 with the feature film Mañana who premiered at the Stockholm film festival. Manuel Concha... |
April 3, 1989 | December 9, 1989 | ||
| Andrés Bianchi Larre | December 10, 1989 | December 2, 1991 | ||
| Roberto Zahler Mayanz | December 3, 1991 | June 30, 1996 | ||
|
Carlos Massad Abud | July 1, 1996 | 2003 | |
| Vittorio Corbo Lioi Vittorio Corbo Vittorio Corbo Lioi is a former Governor of the Central Bank of Chile, who held the post since May 2003 until December 2007.Corbo studied economics at the University of Chile in 1967 and has a PhD in economics from MIT which he gained in 1971. He taught at Concordia University in Canada between... |
2003 | 2007 | ||
| José de Gregorio Rebeco José de Gregorio José de Gregorio Rebeco is a Chilean economist and —from December 2007— the Governor of the Central Bank of Chile. He was formerly Vice-Governor from December 2003, and member of the Bank's Board from June 2001.... |
2007 | present | ||
Present situation
Article 97 of Chapter XII of the current Constitution of Chile granted the autonomous Central Bank constitutional rank. At the same time, this law defined it as a body with its own equity, of a technical nature, whose composition, organization, functions and attributes should be determined through a basic constitutional law of its own.Nonetheless, legislators also established a constitutional rule, contained in Article 98 of the Constitution, that this institution could only carry out operations with public and private financial bodies. The Central Bank cannot guarantee nor acquire documents issued by the State, its bodies or companies. Nor can it adopt agreements that involve discrimination or the establishment of rules and requirements that differentiate among persons, institutions or bodies carrying out operations of the same nature, nor can it directly or indirectly finance any public expenditure or loan, except in the case of external war or danger thereof, which must be so qualified by the National Security Council.
In line with the above, on 10 October 1989, Law 18,840 came into effect. Its first article established the text of the basic constitutional law of the Central Bank of Chile. Essentially, along with confirming the Bank's independence in technical and financial (equity) terms, this law also defined the objectives to be pursued by this institution: to ensure the stability of the value of the national currency and the normal functioning of domestic and foreign payments. To achieve these objectives, a suitable macroeconomic balance must be maintained within the formulation of all policies to be projected in time.
With regard to the technical nature of the Central Bank's autonomy, this referred essentially to its ability to establish its own agreements and make its own technical decisions while exercising its attributes. Similarly, from the point of view of equity, the Central Bank is also autonomous, since the law granted it its own equity, which can be managed completely independently of the executive branch.
As a result of the autonomy granted by law, the Central Bank is not subject to supervision by the General Comptroller of the Republic nor the Superintendent of Banks and Financial Institutions. Nor does it form part of the state administration and it is governed exclusively by its own rules, included in its basic constitutional law and some specific clauses included in the general banking law, and it also enjoys sole faculty for the administrative interpretation of its decisions, regulations, orders or instructions, notwithstanding the legal attributes of judicial bodies.
See also
- Economy of ChileEconomy of ChileThe economy of Chile is ranked as an upper-middle income economy by the World Bank, and is one of South America's most stable and prosperous nations, leading Latin American nations in human development, competitiveness, income per capita, globalization, economic freedom, and low perception of...
- Economic history of ChileEconomic history of ChileThe economy of Chile has shifted substantially over time from the subsistence agriculture practised by its indigenous peoples to an early husbandry-oriented economy and finally to one of mining and agriculture. Chile started to industrialize in the 1930s with the creation of CORFO that established...
- Ministry of Finance of ChileMinistry of Finance (Chile)The Ministry of Finance of Chile is the cabinet-level administrative office in charge of managing the financial affairs, fiscal policy and capital markets of Chile; planning, directing, coordinating, executing, controlling and informing all financial policies formulated by the President of...
- Chilean pesoChilean pesoThe peso is the currency of Chile. The current peso has circulated since 1975, with a previous version circulating between 1817 and 1960. The symbol used locally for it is $. The ISO 4217 code for the present peso is CLP. It is subdivided into 100 centavos, although no centavo denominated coins...