Central Bank of Chile
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The Central Bank of Chile (Spanish: Banco Central de 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.
The Central Bank of Chile was created by decree law No. 486, of 21 August 1925, under the government of President Arturo Alessandri. This initiative arose as one of four projects presented that year by the Kemmerer mission. Headed by Princeton University economics professor Edwin Walter Kemmerer, the mission was appointed by the Chilean government to restructure the country's monetary and financial systems. Projects included: a monetary law that sought to stabilize the value of Chile’s currency with the gold standard as the anchor for the country’s monetary unit; the creation of the Central Bank of Chile; and the passing of the general banking and budget laws.
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.
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 Tocornal 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 of government. From a legal perspective, this meant providing the institution with its own legal status.
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 on 26 September 1925. In this context, the objectives of the Central Bank of Chile were essentially of a monetary nature. Above all, the Bank was to watch over the stability of the value of Chile’s currency under a fully convertible gold standard regime and, second, was to regulate currency according to the needs of the monetary market. The basic constitutional law assigned the central bank a monopoly over the issuance of bank notes. Finally, the law required that the central bank hold gold reserves 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.
The first basic constitutional law of the central bank was in force until July 1953, when 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 parliamentary 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.
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.
- Official website (English) (Spanish)