Decree Law 486 of August 22, issued under the presidency of Arturo Alessandri Palma, created the Central Bank of Chile. The initiative arose from one of the projects presented that year by the Kemmerer Mission, hired by the government to restructure the Chilean monetary and financial system.
The Central Bank opened its doors to the public with a nominal capital of 150 million Chilean pesos, of which approximately 13% were contributed by the State, 40% by domestic and foreign commercial banks operating in Chile, and the remaining 47% by the public through the subscription of shares. Its main duties were of a monetary nature.
The Decree with Force of Law 106 was published, which replaced the previous Organic Law. In this new law, the Central Bank was conceived as an autonomous institution of indefinite duration, whose main objective consisted in “promoting the orderly and progressive development of the national economy through a monetary and credit policy that, seeking to avoid inflationary or depressive tendencies, enables the best use of the country’s productive resources”.
The third Organic Law was published, which upheld the same objective entrusted to the Central Bank in previous legislation, albeit introducing several modifications. Among other things, the composition and election of the Board of Directors was modified; the Executive Committee was created, composed of the Governor, the Deputy Governor and the General Manager of the Bank; and the Bank’s powers in matters of credit control were expanded.
Through the enactment of the fourth Organic Law of the Bank, the Monetary Board was created, a ministerial-level body in charge of setting monetary, credit, capital market, foreign trade, tariff, international exchange and savings policies, in accordance with the rules established by the Executive Branch. In addition, the Central Bank became an autonomous institution of public law, which did not take part in the State’s administration, and was endowed with its own capital. This new law also expressly provided for the power of the Central Bank to grant loans to the Treasury by virtue of special laws.
The Organic Law was amended to establish that the Central Bank could not, in any case whatsoever, acquire for itself deductible promissory notes from the General Treasury of the Republic or other credit documents issued directly by the Treasury, or offer direct loans to entities and companies in the public or private sectors, with the exception of financial institutions.
Chile’s Political Constitution conferred constitutional rank to the existence of an autonomous Central Bank. At the same time, the Constitution defined the Bank as a body with its own capital, of technical nature and whose composition, organization, duties and powers should be determined by means of a constitutional organic law.
Article 109 of the Magna Carta states that the Bank may only carry out transactions with financial entities, public or private, although without granting them any guarantees. It also provides that the Bank may not acquire documents issued by the State, its agencies or companies, and that it may not finance any public expenditure, unless the National Security Council considers that the country is in foreign war or threatened by it.
Law 18,840 was published, which in Article 1 established the text of the Constitutional Organic Law of the Central Bank of Chile, and the first Board of the autonomous Central Bank took office, presided by Andrés Bianchi and composed of Alfonso Serrano, Roberto Zahler, Enrique Seguel, and Juan Eduardo Herrera. From that year on, the Central Bank began to implement policies that enabled the reduction of inflation to levels that oscillate by 3% over a year.
