Central Bank Independence

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By PLINIO DE ARRUDA SAMPAIO JR.*

Why such a hurry?

In absolute dissonance with the serious national problems, Congress approved, with the enthusiastic support of the Bolsonaro government, the independence of the Central Bank. The measure goes against what would be necessary to face the economic, social and health crisis that shakes the lives of Brazilians.

While even the International Monetary Fund – IMF – warns of the urgency of countercyclical fiscal and monetary policies, the Brazilian plutocracy deepens, at a touch of the button, the institutionalization of neoliberalism. Instead of prioritizing the recovery of employment and the financing of public policies, the Brazilian State is doubling down on defending rent-seeking.

Although Central Bank independence is presented as a technical issue, related to the need for “rational” currency management, it is, in fact, an eminently political problem. It is about who establishes the conditions of access to national currency and international currencies. As the ultimate guardian of the national currency, the Central Bank functions as a nerve center that, within certain limits, conditions the direction, pace and intensity of capitalist development within the country.

The decisions of the monetary authorities are crucial in determining the interest rate (which arbitrates the cost of money) and the exchange rate (which defines the price relationship between the country and the rest of the world). As a consequence, the Central Bank plays a central role in conditioning the supply of money and credit; in the establishment of payment conditions for public and private debts; in the defense of international reserves, as well as in the inhibition of speculative maneuvers that put the soundness of the financial system at risk.[1]. Therefore, if the monetary authorities are independent of popular sovereignty, such deliberations – which have a direct impact on the functioning of the national economy and its repercussions on the lives of workers – will be completely subordinated to the logic of big capital.

The independence of the Central Bank – an old claim of the wealthy – transformed the de facto autonomy of the monetary authorities, existing for decades, into an institutionalized autonomy. The problem is not merely formal. Legal autonomy is yet another blow to the working class. The fox got the deed to the chicken coop, out of ironed paper. Shielded from pressures coming from political power, the possibility of a monetary policy that contemplates, even if in minuscule doses, some atom of concern with the economic and social situation of those who live from their work becomes even more remote.

The urgency given to the Central Bank independence vote is surprising, considering that the 2021 federal government budget has not even been approved. The situation is surreal. Even without any imminent risk of inflationary escalation, public debt creditors can sleep easy knowing that the value of their fictitious capital will be protected from any bad weather, but there is still no forecast of resources to help the country's two main problems - vaccination of the population and the survival of the 67 million Brazilians who no longer receive Emergency Aid, without the conditions that demanded its creation having been overcome.

Put in perspective, the rush to institutionalize the formal autonomy of the Central Bank proves to be a desperate preventive action to preserve impossible circumstances, whatever the cost, the regime of fiscal and monetary austerity. Without modifying the Fiscal Responsibility Law, revoking the Expenditure Ceiling Law and putting the currency at the service of the nation's strategic interests, there is no way to avoid a major depression, with catastrophic repercussions on the living conditions of the population and on the organization itself. of the Brazilian State.

At a time when the coronavirus crisis places the need for profound changes in economic policy on the agenda, those in power are doubling down on the neoliberal adventure. But just as the law of gravity cannot be revoked by political will, it is impossible to stop the storm that threatens the economic, social and political foundations of the Real Plan with legal expedients.

The escalation of public debt and the prospect of inflection in international capital flows undermine the objective bases of the stability of the national currency – the fiscal and exchange rate anchors that give capitalists relative confidence in relation to the stability of the national currency. The worsening of the social crisis, which leaves one in every three workers on the sidelines of the labor market, intensifies the class struggle, turning the country into a powder keg. The link established between economic stability and institutional stability led to a paroxysm in the legitimacy crisis of the New Republic. The economic, social and political crises are inexorably mixed.

The bourgeoisie went for all or nothing. However, the expedient of gaining time, stretching the survival of the Real Plan to the limit of its possibilities, has limited scope. The drowning embrace between the Real Plan and the New Republic reinforces the urgency of debating a project for society capable of offering an alternative to the civilizing crisis that threatens Brazil. The democratic revolution, which eradicates the structures responsible for social segregation and advances in search of substantive equality, is the only way capable of overcoming the escalation of barbarism in Brazil. The emergency task is to depose Bolsonaro and Mourão as the first step towards a complete redefinition of national life.

* Plinio de Arruda Sampaio Jr. is a retired professor at the Institute of Economics at Unicamp and editor of Contrapoder website. Author, among other books, of Between nation and barbarism – dilemmas of dependent capitalism (Voices).

Note


[1] In other words, monetary policy influences investment decisions, the definition of the value of fictitious capital, the spending capacity of the public sector, the possibility of household indebtedness, the credit-spending-income circuit that relates solvency from the productive system to the solvency of the financial system, in the regulation of the banking system, as well as in the country's commercial, productive and financial relations with the outside world.

 

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