The new legal framework for foreign exchange

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By FERNANDO D'ANGELO MACHADO*

O country even more vulnerable

At the beginning of the year, the government and parliament took two measures that should greatly increase the country's external vulnerability and, in a reaction to the economic crisis, deepen neoliberalism and authoritarianism. These measures are the Central Bank autonomy projects (PLP 19/2019) and the new Legal Exchange Framework (PL 5387/19). With these measures, an attempt is made to institutionalize a new way of preserving the assets of the ruling classes while directing the damage caused by the increasingly recurrent economic crises to the working class.

Taken together, the explosive potential of the measures is evident. While the Central Bank of Brazil's (BCB) autonomy project has the effect of making decisions about the direction of economic policy even more anti-democratic, distanced from any influence of the people and restricted to serviceable technocrats of big capital (see counter power article), the new Legal Exchange Framework gives this same BCB the possibility of authorizing, through infralegal legislation, that is, without passing through Congress, the opening of accounts in foreign currency in Brazil for individuals and legal entities without restrictions.

In addition to determining that it is up to the BCB to regulate accounts in foreign currency in Brazil, the project for the legal exchange framework also intends to open space for Brazilian banks and financial institutions to invest abroad resources raised in the country or abroad, as well as increasing the chances in which payment in foreign currency of obligations due in the national territory will be allowed and it expands the permissions for exporters to use resources held abroad and originating from exports, among other actions.

In addition, the project revokes legal provisions that could be triggered by the government in times of exchange rate crisis, such as those contained in Law nº 4.131/62 and Law nº 4.390/64, such as article 28 that says that “Whenever there is a serious imbalance in the balance of payments or there are serious reasons to foresee the imminence of such a situation, the Council for the Superintendence of Currency and Credit may impose restrictions, for a limited period of time, on imports and remittances of income from foreign capital and, for this purpose, grant to the Bank of Brazil total or partial monopoly of exchange operations”. This repeal responds to an old claim by traditional defenders of neoliberalism, who never hid their dissatisfaction with the legal provision of the mere possibility that, in times of serious crisis, the government would have the power to restrict and control part of the exchange flows.[I].

Thus, it will be up to the autonomous BCB, that is, subservient to “market forces”, in addition to regulating the opening of accounts in foreign currency in the country, managing international currencies and taking crucial decisions in determining interest and exchange rates.

By placing the BCB's strategic decisions at its service, including allowing financial openness to advance towards the full convertibility of the currency, big capital is armed with new instruments for the defense of its assets, whose predominant contemporary form is fictitious capital, which are presented as property titles and real possibilities of capital appreciation.

As the authorization to open accounts in foreign currency in the country becomes effective, it is more likely that it will result in the increasing use of foreign currency (especially the dollar), further limiting the BCB's ability to maintain financial stability, which will be even more at the mercy of the big banks and investment funds and their capital inflows and outflows. Individuals and companies will have incentives to move their wealth from the real to the dollar in times of uncertainty, increasing exchange rate volatility and the possibility of speculative attacks against the Brazilian currency. Allowing non-residents to borrow in national currency also increases the potential for speculative bets by these agents against the national currency, increasing the country's already high external vulnerability.

These movements, almost always led by large banks and investment funds, usually result in the expansion of their wealth and the centralization of that capital, while the population suffers the consequences of the crisis. When these movements significantly affect the wealth of these major agents, the State does not take long to reactivate this stock of wealth with generous injections of liquidity.

Exposed to the disruptive effects of capital movements, economies become increasingly hostage to the requirements imposed for maintaining and expanding the accumulated mass of fictitious capital. These demands usually come in the form of a restructuring of the State and the strengthening of capital against labor. With the crisis, a state of uncertainty sets in that puts the economy between the reestablishment of capital accumulation conditions, which means advancing even more on public goods and reducing labor costs, or the worsening of the crisis with new rounds of capital flight.

This strategy to combat the crisis of liberalism with more liberalism is leading the country down an irrational and absurd path, leading to a paroxysm of the perverse effects of the crisis, such as the increase in structural unemployment and the deepening of job insecurity, intensifying the social crisis. In this scenario, the bourgeoisie will not shy away from the recurrent use of force and authoritarianism as a means of responding to social upheaval and imposing even more severe conditions of exploitation on the working class.

It is, therefore, a policy that seeks to extend and deepen neoliberalism in the quest to sustain and expand the accumulated mass of fictitious capital, removing the barriers to capital accumulation that previous democratic achievements had achieved. This is not a problem of deregulation, but an articulation of big capital for the establishment of financial regulation and supervision whose objective is to guarantee that the damages of financial crises are directed away from the dominant classes and the center and their costs are absorbed by the working class and the periphery[ii].

*Fernando D'Angelo Machado is a doctoral candidate in economics at the Fluminense Federal University (UFF).

Notes


[I]Gustavo Franco, for example, makes clear his dissatisfaction with the possibility of any interference or obstacle to the movement of capital, apparently not mattering how undemocratic the measure is, in the text 'The deregulation of the account and capital: macroeconomic and Regulatory limitations', as can be seen in the following excerpt: “The examples of drastic restrictive measures that can be taken in a moment of “exchange rate urgency” are frightening, and will not be listed here; the interested reader will have no difficulty in finding them by going through Law 4.131/62 (…).” (2004;p23).

[ii]Christopher Rude, in his text “The Role of Financial Discipline in Imperial Strategy”, published in the Socialist Register magazine, in 2005, already highlighted how crises and the regulation of financial markets were functional for the reproduction and extension of neoliberalism.

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