Chile's Bank aims to amass US$18.5 billion in reserves within the next three years
The Central Bank of Chile has announced a three-year program to accumulate up to US$18.5 billion in international reserves, starting from August 8, as part of a financial management strategy. The aim of this program is to change the composition of the Central Bank's international liquidity sources by increasing its own reserves and reducing reliance on credit lines, particularly the IMF’s Flexible Credit Line (FCL) facility.
The Central Bank will be purchasing up to $25 million daily, with the transactions taking place prior to market opening. This strategy involves gradually replacing part of the existing foreign currency credit lines with the Bank's own international reserves. The reserve accumulation program will be sterilized to avoid domestic liquidity impacts by issuing central bank promissory notes.
The aim of this program is to strengthen the management of international reserves, improve financial stability, and enhance resilience against external shocks such as currency volatility or geopolitical risks. By accumulating these reserves, the Bank anticipates a smaller future FCL renewal, ensuring that the overall liquidity buffer remains relatively stable while relying more on own resources than credit lines.
This move is expected to increase financial sovereignty by reducing dependence on IMF credit lines, provide a stable liquidity buffer combining own reserves and credit lines, help mitigate foreign exchange volatility and external risks amid global uncertainties, support ongoing inflation targeting and exchange rate policy without disruptive market effects, and reflect a proactive approach to safeguard financial stability and economic resilience.
This financial management move fits Chile’s broader strategy to adapt to evolving global trade conditions, geopolitical risks, and economic challenges, ensuring sustainable macroeconomic stability going forward. The Central Bank's decision does not aim to affect the behavior of the foreign exchange market or modify financial conditions. The measure will be reviewed every six months.
[1] Central Bank of Chile press release, August 2023. [2] Central Bank of Chile, "Reserve Accumulation Program," August 2023. [3] Ministry of Finance, "Chile's Financial Management Strategy," August 2023.
- The Central Bank of Chile's Reserve Accumulation Program, as stated in the press release of August 2023, is an attempt to strengthen the nation's financial sovereignty by reducing dependence on IMF credit lines, while ensuring a stable liquidity buffer combining own reserves and credit lines in the banking and finance industry.
- The Ministry of Finance's report, "Chile's Financial Management Strategy," indicates that this program is part of the country's broader strategy to enhance resilience against external shocks, improve financial stability, and maintain a proactive approach towards safeguarding economic resilience, all within the news landscape of adaptability to global trade conditions, geopolitical risks, and economic challenges.
