Description

This study takes stock of the institutional reform of monetary policy in Latin America since the early 1990s. It argues that st rengthening the legal independ ence of central banks, together with macroeconomic policies, was instrumental in reducing inflation from three-digit annual rates in the 1990s to single- digit territory in 2004. The pa per also discusses the main challenges of monetary policy today, namel y, achieving price stability, restoring market confidence in domestic currencies, and sticking to policy consis tency despite adverse effects of the volatility of capital flow s. Finally, recurrent banking crises and lack of fiscal discipline are identified as the main potential risks for the success of monetary policy in Latin America.