We must also consider the coherence of the intervention with the rest of the economy. A sufficiently bulky intervention could sustain a more depreciated nominal exchange rate, even if fundamental forces point to appreciation. However, these pressures to appreciate will take the form of higher inflation as they will drive demand for national goods to grow too fast. In the medium term, the real exchange rate is the same, but inflation is higher when the foreign 4  exchange rate adjustment mechanism is locked. Some emerging economies that have tried to avoid the nominal appreciation of their currencies are seeing a faster acceleration of inflation because the acceleration of expenditure squeezes internal production capacity. As I said, currencies are appreciating around the world, even in Asian and Latin American countries that have intervened in the market and adopted other types of financial measures to contain this appreciation (figure 7). In fact, interventions may have attenuated somewhat the nominal exchange rate appreciation, but at the end what we are seeking is to affect the real exchange rate, and the evidence on the matter shows that, on average, there is no obvious connection between the level of the countries’ interventions and the behavior of their real exchange rate (figure 8). In Chile, the latest intervention occurred in April 2008, with visible effects on the exchange rate.
Our history and that of the region is paved with stabilization measures based on the exchange rate, which generated severe setbacks, and ended in balance of payments crisis, financial turmoil and economic disasters. For this reason, we have evolved into a floating exchange rate regime, which permits to better reconcile the stability of the Chilean economy with the volatility of the external scenario. This is not the time or the place for a lengthy discussion on the subject; suffice it to recall that every economic crisis in Chile over the past fifty years – except the recession of 2009 we are leaving behind with unprecedented vigor – have been associated to exchange rate misalignments and rigidities. Furthermore, a very significant element to explain why the emerging economies were spared the worst effects of the recent global crisis was that their currencies floated, which allowed them to absorb the shocks, eliminated the invitation to investors to wager against currency weakening and opened room to relax monetary policy and provide liquidity. However, although a floating exchange rate has many advantages for economic and financial stability, it may happen that, at times of high uncertainty or excessive optimism, financial flows could persistently push the real exchange rate away from its medium- and long-term fundamentals, with negative effects on the economy. In such situations, the Central Bank may intervene in the foreign exchange market with the purpose of mitigating or eliminating these imbalances.