The Central Bank of Chile's basic constitutional law establishes in its third article that one of the basic objectives of this institution is to preserve the stability of the country's national currency. This implies avoiding a deterioration in the value of the currency as a result of price inflation. Thus, it is the Central Bank of Chile's responsibility to ensure that inflation remains low and stable. The importance of this objective of ensuring the stability of the country's currency lies in the costs implicit inflation. On the one hand, higher inflation tends to distort the price system within the economy and, as a result, the information that prices provide does not permit the efficient allocation of resources. On the order hand, from a distributive perspective, inflation tends to hurt those who hold more of their wealth as cash, that is, the poorest sectors. Thus, price inflation negatively affects the level of economic activity and the population's welfare. For these purposes, the Central Bank's powers involve.Regulation the amount of money and credit in circulation and the approval of rules in the monetary sphere, because of the direct relationship between money and prices in the long term. Thus, the application of a strict and orderly control over the quantity of money constitutes the sole form of ensuring low, stable inflation over time.
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