A key aspect to underline is that a potential CBDC could coexist perfectly well with physical cash, which serves an important role and for which -at least in the euro area- there is still strong demand.1 In other words, traditional cash and a CBDC might be natural partners, rather than potential substitutes for each other as they are often presented. However, before taking any major decision on the issue of a CBDC, several important questions need to be answered: What precise complementary roles would cash, bank accounts and digital coins play? Should central banks focus on securing a sound regulation that offers appropriate safeguards and leave the private sector to come up with viable alternatives? Or should we ensure the provision of a safe asset by issuing a CBDC? As you can see, when faced with a case of practical use, even one as apparently simple as this, embracing the opportunities that new technologies offer is not always crystal clear. What’s more, when approaching this topic in more detail, many questions and far-reaching implications arise, thus suggesting the need to tread cautiously in unknown territory. I refer to the myriads of design and operational aspects, such as whether this “new digital cash” should preserve all the features of traditional banknotes and coins (for instance, anonymity), or whether some of the key processes such as Know Your Customer or compliance with AML requirements should remain in the hands of the private sector for efficiency reasons.
Behind this favorable response of the Chilean economy lies a macroeconomic policy framework able to pursue an effective reaction, and a regulatory scheme supporting the high resilience of the domestic financial system. In Chile the monetary policy framework consists of a flexible inflation-targeting regime with a floating exchange rate. This framework has allowed us to respond efficiently to external shocks keeping inflation expectations anchored. Before the Asian Crisis of 1998, we had a managed exchange rate and we had capital controls in place to allow monetary policy independence to manage inflation in a context of abundant capital inflows. Indeed, we experienced a costly adjustment to that episode, and this was fueled in part by financial stability concerns that called against an exchange rate adjustment. But once the harder times had passed, the exchange rate was allowed to float freely, facilitating not only the external adjustment against shocks but also improving the incentives for private agents to properly hedge their foreign currency operations. The deep-rooted credibility of our Central Bank has also facilitated the conduct of monetary policy with a floating exchange rate system. The fact that the market understands that the Central Bank pursues a goal for inflation at a 24-month horizon means that the exchange rate pass-through to inflation is relatively low, indeed the lowest in the region. This can be illustrated with the reluctance of the Central Bank to tighten monetary policy in 2015 despite a 49 percent devaluation in 2014-2016, and without affecting 24-months-ahead inflation expectations, which remained anchored at the target level.