Brazil’s Minister of Finance, Antônio Palocci, recalled today that during the last two years – Lula’s Administration – the Central Bank (BC) has enjoyed effective autonomy in the management of monetary policy and that the results represent a victory for all of society.
In his view, there is a general awareness in the country that it is essential to guarantee this autonomy formally, so that the future capacity of the BC will not be affected by short-run considerations
Palocci spoke at the commemoration of the BC’s 40th anniversary and explained his position in favor of the autonomy of the institution. He made it clear that, although he favors autonomy, the measure still depends upon discussions involving various social segments.
The Minister pointed out that there is no doubt that the discussion of this issue reveals a healthy understanding of the fact that price stability represents an important achievement for Brazil.
The Central Bank of Brazil was founded on December 31, 1964. It began to exercise its function as monetary authority on March 31, 1965. Prior to this, the role of “watchdog of the national currency” was assigned to the Superintendency of Money and Credit (Sumoc), the Bank of Brazil, and the Federal Treasury.
According to information provided by the BC, the Sumoc, established in 1945, was in charge of controlling the volume of currency in circulation, the volume of resources banks were obliged to maintain as reserves, bank interest rates, and, consequently, inflation, as well as other tasks.
With the creation of the Central Bank, patterned after the world’s most modern institutions, the government decided to reorganize the financial system and transfer responsibility for “defending the national currency” to the institution.
The 1988 Federal Constitution contains important provisions concerning the activities of the Central Bank. These provisions include the Federal Government’s exclusive right to issue currency and the requirement of Senate approval, in a secret vote following public debate, of the names indicated by the President of the Republic to fill the positions of president and directors of the institution.
The Central Bank still lacks operational autonomy, however, since it is an autarky linked to the Ministry of Finance.
This question has been a theme of debate for a long time and is taking shape in the National Congress. In many people’s view, an autonomous BC would give greater credibility to the country’s monetary policy.
Translation: David Silberstein
Reporter – Agência Brasil