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.

Juliana B. Bolzani, Marcelo M. Prates, Flávio J. Roman, Marcel M. dos Santos


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.

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.

This framework was enhanced in 1999, when Brazil overhauled its monetary and exchange-rate policies, following a severe financial crisis. 

That year, the country abandoned its currency peg to the dollar and adopted a flexible exchange-rate system, which enabled the implementation of an inflation-targeting regime. 

This shift reinforced the perception that the BCB enjoyed de facto independence within the government.

The new law means that the BCB’s autonomy is now explicitly guaranteed by federal statute. 

Moreover, the legislation adds one missing piece to the legal framework supporting the central bank’s independence. 

Under the autonomy law, the BCB’s president and eight directors will be appointed by Brazil’s president and confirmed by the Senate, serve staggered four-year terms with the possibility of being reappointed once, and can be removed only for cause.

The autonomy law also dispels the myth that central-bank independence creates an unaccountable institutional superpower. 

Although the BCB will not have “ties or hierarchical subordination to any Ministry,” its actions will remain subject to judicial review and congressional oversight. 

For example, the law requires the BCB president to “present to the Federal Senate at public hearings to be held in the first and second semesters of each year an inflation report and a financial stability report explaining the decisions made in the previous semester.”

So, after three decades, Brazil’s constitutional plan for an independent, credible, and accountable central bank is complete. 

But has it come too late? 

Inflation currently is low in many countries, and the COVID-19 pandemic is showing that, without monetary support, governments may not have enough fiscal firepower to help those in need. 

Some therefore argue that the theoretical justification for central-bank independence is weaker than before.

We disagree. 

First, even when inflationary pressure is not a concern, central banks still must deal with other politically sensitive issues. 

From setting negative interest rates and managing international reserves to providing liquidity assistance or even letting a bank fail, many central banks’ decisions can become controversial and subject to political pressure. 

Mercurial leaders have often dismissed heads of central banks for reasons other than surging inflation and higher interest rates.

Central-bank independence is even more important when the institution receives a broader mandate, as has recently happened in Brazil. 

In addition to the BCB’s “fundamental objective” of ensuring price stability, the autonomy law adds three secondary objectives: “fostering the stability and efficiency of the financial system, smoothing fluctuations in the level of economic activity, and promoting full employment.” 

If the BCB were not independent, it could come under political pressure to use its wider authority to uphold partisan priorities, potentially preventing monetary policymakers from striking the right balance between their multiple objectives.

Second, the idea that any government in control of its sovereign currency can use the “money-printing machine” without worrying about trillion-dollar deficits or mounting national debt is highly misleading. 

Controlling the inflationary pressure created by endless money issuance may be relatively simple for a handful of countries that have a widely accepted international currency, structurally low interest rates, and a total debt (public and private) that is overwhelmingly denominated in their own currency.

For all other countries, Brazil included, creating money and supplying the economy with liquidity is easy, but withdrawing the excess liquidity later is much harder. 

Many central bankers might have the nerve to implement unpopular policy tightening in response to rising inflation. 

But they could end up losing their job if their institution is not independent enough.

Central-bank independence is a democratic choice that enables the separation of money creation from government financing, laying the foundation for sustainable economic growth. 

Without it, the collective interests and public values that central banks protect and advance are at risk. 

The Brazilian autonomy law is to be celebrated – and handled with care.


Juliana B. Bolzani is a senior expert in monetary and international affairs at the Legal Department of the Central Bank of Brazil.

Marcelo M. Prates is a senior expert in digital currencies and financial technology at the Legal Department of the Central Bank of Brazil.

Flávio J. Roman leads the litigation division at the Legal Department of the Central Bank of Brazil.

Marcel M. dos Santos leads the policy and regulation division at the Legal Department of the Central Bank of Brazil.

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