Central-Bank Independence Comes to Brazil
Central-bank independence is a democratic choice that enables the separation of money creation from government financing, laying the foundation for sustainable economic growth. The recently adopted Brazilian autonomy law is therefore a historic achievement to be celebrated – and handled with care.
BRASÍLIA – In late February, after 30 years of debate in the Brazilian Congress, Complementary Law No. 179 took effect, granting “technical, operational, administrative, and financial autonomy” to the Central Bank of Brazil (BCB). The issue has been so divisive that the traditional term “independence” had to be replaced by the less politically charged “autonomy.” Despite this and other compromises, the day after the bill was signed into law, two political parties filed a lawsuit at the Supreme Court challenging its constitutionality.
So, why insist on having an autonomous BCB?
The new autonomy law concludes a long-running institutional project that started with Brazil’s adoption of a new constitution in 1988. Article 164 of the Constitution established two pillars of central-bank independence: the BCB was granted sole authority to issue Brazil’s official currency and was prohibited from financing the Treasury or extending loans to non-financial institutions.