On one hand, in the aftermath of the 2008–2009 crisis the main central banks of the world had to adopt unconventional policies to cheer up their ailing economies, flooding the world with unprecedented levels of liquidity and thus increasing the price of financial assets. Today, the start of the US monetary policy normalization is around the corner, which will intensify the divergence with other developed economies whose cycles are behind. Meanwhile, after years of seemingly endless increases in commodity prices, we have seen the so-called super cycle of commodities wear out, and with it, the boom of investment and income that we experienced for the better part of the past decade. These two situations pose major challenges to emerging economies and Chile in particular. In the short term, it is very likely that we will see increased financial volatility, including unusual fluctuations in the exchange rate. This may complicate the inflation outlook, at least in the short term, as inflation is closely linked to fluctuations in the nominal exchange rate over short periods. The effects of these situations of increased volatility on the inflation trajectory at longer terms, which certainly are more important for monetary policy, are difficult to predict, as they depend on many factors, such as the cyclical state of the economy and expectations, which we carefully assess when making our decisions. Certainly these are not the only challenges that these transitions face us with.
Third, getting a handle on – and where necessary – regulating, the risks in the so called “shadow banking” system: the ecosystem of non-bank financial firms that perform a similar role in credit intermediation to that played by the banking sector. And fourth, and perhaps most important, making sure that no institution, no matter how large, how complex, how international in its activities or to put it simply, no matter how systemic, is “too big to be allowed to fail”. Because if financial institutions can make themselves too big to fail, if they can ensure that if and when they get into trouble the taxpayer will have no option but to bail them out if, as the economists put it, they can ensure that their profits and their pay are private but if it all goes wrong the losses are “socialised” then history teaches us that this is exactly what they will do. III. What has been achieved? So, in these four key areas, what has been achieved? The inputs have certainly been impressive. From a standing start in 2009 the Financial Stability Board has driven the regulatory reform programme. Under the FSB, around 25 groups have been set up to run around 15 major workstreams.