Federal government proposal provides for independent Central Bank

On January 23, the Office of the Chief of Staff of the Presidency of the Republic presented 35 targets proposed by the federal government for the first 100 days of President Jair Bolsonaro's administration, with plans for the most diverse areas of public administration. One of the projects included in the list of actions has to do with the independence of the Central Bank of Brazil (BCB). But, what does this autonomy mean in practice? Read below for the implications of this measure and the main benefits of having an independent Central Bank.

Attributions

Created in 1964, the Central Bank is a self-regulated federal government body, whose main role is to ensure the stability of the purchasing power of the currency and the existence of a solid and efficient financial system.

The BCB is responsible, for example, for conducting monetary, foreign exchange, credit and financial relations policies abroad; regulating and supervising the National Financial System (SFN); managing the country's payment system and the availability of paper currency, among other tasks.

In sum, the Central Bank exists to manage the national currency, allowing the Real to work for the entire Brazilian population.

Independence

The proposal by the federal government aims to make official the autonomy the Central Bank already enjoys in practice in the country. Without legal independence, however, the members of the bank’s board of directors may be removed at any time by the Executive Branch.

With autonomy enshrined in law, the Central Bank will have the legal freedom to make all decisions that may be required of it, without any risk of possible political interference. In addition, the institution may set a fixed term of office for its board members, which does not currently occur.

For Marcos Sarmento Melo, a professor of Finance at Ibmec and a senior officer at Valorum Gestão Empresarial, the independence of the BCB has already matured as a concept in Brazilian society: "[The independence of BCB] really makes economic management more serious. It improves the perceived quality of the country's economic conduct, especially for international agents,” he said.

OECD

Central Bank independence is already a reality in most of OECD countries, a group of the world's leading economies that includes developed nations such as the United States, Japan, Germany, the United Kingdom and France, among others. Brazil has expressed its wish to join to the organization.

In a report published last year, the OEDC had already suggested to Brazil that the Bank's autonomy should be made official. According to the international institution, formalizing independence would protect the BCB from "possible future political interference" and “further” improve the effectiveness of the Brazilian monetary policy, and as such is "essential to maintain the credibility" of the country.