Shaping the frontiers, not crossing it: navigating liquidity and credit interventions by subordinated central banks in Latin America

In the wake of the 2007-2008 financial crisis, North American and European central banks embraced a more interventionist stance to grapple with heightened financial volatilities. For Latin American central banks, the active regulation of international finance has been nothing new, and they could leverage their previous, extensive experience to navigate through the turbulent last 15 years. However, institutionalized constraints that were introduced to deal with credit-providing global investors constrict their capacity for policy intervention. These limitations compel central banks to meticulously differentiate between "good" liquidity interventions and "bad" credit interventions. Using the cases of Argentina, Brazil, and Chile, this article examines how this form of financial subordination has molded government-central bank relations and the capacity to respond to the COVID-19 pandemic and the Ukraine War. Central banks were forced to carve out novel strategies to enhance credit supply as well as stabilize public and private debt markets while seeking to vindicate the institutionalized key attributes (clarity of purpose, political neutrality, and independence). Furthermore, probes to what extent these novel strategies, including the increased engagement with China through swap arrangements and FX reserves, mitigated or exacerbated financial subordination.