The exchange rate reform

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Liberalization, convertibility and dollarization

There was some debate, albeit late and insufficient, on the bill that granted formal autonomy to the Central Bank of Brazil (Supplementary Bill 19 of 2019). Even more limited has been the discussion of another bill regarding the Central Bank, also approved by the Chamber in early February – the one that deals with the foreign exchange market (Bill 5.387, of 2019), dubbed by some critics as the “exchange binge” project. It is the latter, which brings about a broad reform of the legal framework of the foreign exchange market, that I intend to address in this article.

The PL for autonomy, which was first discussed in the Senate, went on to be sanctioned by the President.[1] The bill for the exchange went on to be considered by the Senate. Everything in the box. They are passing the cattle – and not only in the environmental area.

Each of these PLs would be problematic by itself. Combined, they constitute a real bomb for the country. I anticipate in two sentences what I intend to argue: the Central Bank, now shielded from the influence of the government, will have carte blanche to adopt a series of fundamental measures on the monetary and exchange rate regime in Brazil, already initiated or signaled in the project itself. Autonomous Central Bank, dependent and vulnerable country.

Reader, take a good look: the autonomy that the buffoons preach for the Central Bank is not just, as the unwary imagine, that of conducting the monetary policy to control inflation under the influence of rulers with a short horizon. It's much more than that. In practice, formal autonomy also serves to place crucial decisions for monetary sovereignty in the hands of the autonomous Central Bank. Decisions that concern essential aspects of the relationship between the national currency and foreign currencies. Decisions that are now taken autonomously by the Central Bank, without the interference of the National Monetary Council (CMN), where the Ministry of Economy, subordinate to the President of the Republic, has the majority of seats.

From the organizational point of view, the central point, rarely highlighted, is the transfer to the Central Bank of attributions currently in the hands of the CMN. The Board of the Central Bank, a group of technocrats and financiers shielded from the elected government, many of them viscerally linked to the financial market, starts to concentrate unprecedented powers and attributions. For reasons that I have explained in recent articles and comments and that I will not repeat here, this amounts to transferring even more power into the hands of large domestic and foreign financial institutions.[2]The bufunfa gang, pawned, thanks you.

The currency project is complex and has many implications. By altering or revoking a large number of legal provisions, it represents a profound change in the legal framework of the foreign exchange market. Deepest in decades. Some changes, which involve simplification or modernization, are even defensible. But they come mixed with highly questionable strategic shifts.[3]

I will deal with some of these strategic aspects that seem dangerous to me, in the hope (the last one that dies) that the Senate will be willing, at least, to promote a discussion of the subject in committees or in public hearings, before taking a final decision.

I highlight two aspects that threaten national autonomy and monetary sovereignty: a) the liberalization of the foreign exchange market and capital movements; and b) the expansion of the use of foreign currency in the national territory, including the opening of bank accounts in dollars.

With the project, devices that regulate, albeit in a limited or only potential way, capital flows of different types disappear or are modified, which increases the convertibility of the national currency. The Central Bank is given carte blanche to deepen this liberalization movement, which could lead to full convertibility of the real. Since the 1990s, during the Collor and FHC governments, several measures have been adopted to prematurely open the capital account of Brazil's balance of payments, increasing the external vulnerability of the economy and contributing to successive exchange rate crises. Everything indicates that the intention is to complete this service.

A particularly problematic innovation is that of authorizing the broader use of the dollar and other foreign currencies in Brazilian territory. In the Latin American context, Brazil has always stood out for resisting the dollarization of its economy. It is one of the strengths of the Brazilian trajectory. Even in times of high inflation and hyperinflation, generalized monetary restatement and contract indexation prevented dollarization or greatly limited its reach, by offering applications protected against inflationary corrosion and domestic units of account superior to the dollar.[4] In this way, we avoid the disasters that Argentina and other neighbors suffered with dollarization. PL 5.387/19 expands the chances of internal use of the dollar and gives the Central Bank carte blanche to regulate accounts in foreign currency in the country, including the requirements and procedures for their authorization and movement.

All this shows, reader, the abandonment in which the national interest finds itself. Since the coup that overthrew President Dilma, Brasília has allied itself with Faria Lima and foreign interests to implement regressive reforms, which make Brazil more iniquitous and more vulnerable to external influences, creating obstacles that are difficult to overcome to the resumption of sustained development with national autonomy and social justice.

*Paulo Nogueira Batista Jr. he was vice-president of the New Development Bank, established by the BRICS in Shanghai, and executive director at the IMF for Brazil and ten other countries. Author, among other books, of Brazil doesn't fit in anyone's backyard: backstage of the life of a Brazilian economist in the IMF and the BRICS and other texts on nationalism and our mongrel complex (LeYa).

Extended version of article published in the journal capital letter on February 19, 2021.

The author is grateful for the help of Emílio Chernavsky in the discussion of the foreign exchange reform bill.


[1] For recent discussions on the topic of autonomy and the complementary bill 19/2019, see, for example, Nelson Barbosa, “BC: autonomy in relation to whom?”, Folha de S. Paul, February 10, 2021; and article I published on December 14, 2020: “Autonomy of the Central Bank – a fourth power?”, available on my internet portal: .

[2] See video comments published in December 2020 on my YouTube channel, in the comments tab: “The bufunfa gang and the revolving door at the Central Bank” and “Autonomy of the Central Bank: they are trying to pass on another herd”, available at: . In the channel's interviews tab, I posted interviews from February on the issue of autonomy and the processing of the bill in the Chamber of Deputies.

[3] Some of the problems of the exchange rate reform project were discussed in an article that I published when the Executive sent it to Congress: “Should Brazil advance in the liberalization of the exchange market? No", Folha de S. Paul, October 19, 2019.

[4] This point is technically interesting but has been overlooked. Unless the exchange rate consistently obeys some indexation rule (variation due to internal inflation or the difference between internal and external inflation), the dollar is an inefficient and problematic index. Given the vulnerability of the balance of payments, which is always subject to changes in the terms of trade and the international financial cycle, the application of an indexation rule to the exchange rate proves to be difficult to sustain over time. In a floating exchange rate regime, the difficulty of resorting to foreign currency as a unit of account and contract index is even greater. If general price indices are considered reliable and the institution of monetary correction is legally recognized, internal indexation to the price level proves to be more efficient than indexation to the dollar.


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