The current international financial system is anchored on the United States dollar. Countries that do not issue the reserve currency must be able to acquire, and indeed accumulate, the currency they cannot issue to carry real and financial transactions. As a result, their external performance shapes and constrains to a significant extent their capacity to pursue domestic policies including fiscal and monetary policies. In this sense countries are said to be 'balance-of-payments' constrained. This paper examines, for the case of Chile, the limitations imposed by external conditions to the undertaking of a monetary policy strategy, inflation targeting, which focuses explicitly on a domestic objective, namely a low and stable rate of inflation. Chile adopted an inflation targeting strategy in 1991. Since, the adoption of the inflation targeting strategy followed two clear and distinct phases. The first one lasted from 1991 to 1999 and can be termed an Eclectic Inflation Targeting Regime (EiT). From 1999 to the present Chile switched to a Full Fledged Inflation Targeting Regime (FFIT). The analysis of both phases shows that pursuing inflation targeting under balance-of-payments constrained conditions ultimately leads to a conflict of interest between internal and external objectives, and that the conflict tends to be solved in favor of the latter.