Exchange-Rate Intervention ‘Not Effective,’ Chile’s Claro Says

Intervention and capital controls are ineffective for fighting currency appreciation, Chilean central bank policy maker Sebastian Claro said in a speech at Duke University in Durham, North Carolina, according to a transcript of his remarks posted on the central bank’s website.

On currency intervention:

“One of the implications of the increase in the relative price of natural resource-intensive products is that the region could be entering a period of sustained pressures toward exchange-rate appreciation, pushing the countries to specialization in natural resources.

“Many countries don’t like this. And they promote capital controls and exchange-rate interventions as [a] means to combat this new reality. These are not effective mechanisms to confront these challenges. The debate should be the other way ‘round; how do we make the best out of the abundance we are facing? Those who strengthen their political and economic institutions, promote good investment climates and provide their population with real and effective education tools will be the ones who truly profit from this.”

On overheating economies:

“There are signs of overheating in some countries. China is a good example and, to some extent, Brazil is, too. Growth during the crisis was strongly supported by a tremendous fiscal and credit expansion, which boosted public investment and inventory accumulation in the industrial sector. These countercyclical policies need to be retracted, and incipient inflationary pressures reflect exactly this phenomenon.”

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