The
Brazilian real: As of today, worth about 60 cents.
Estadao, Brazil
The U.S. FED: Role
Model for Brazil's Central Bank
"Those
with an ideological bias or Anti-Americanism lose sight of two relevant points.
One, the importance of debating the Central Bank's institutional design. Two,
what we can learn from the United States. For it's in times of systemic crises
that the institutional design of an institution is put to the test."
Globally and domestically,
we're at a crossroads. The question of central bank autonomy is returning to
center stage. In the United States, the FED's heterodox approach - particularly
its monetary easing - has encouraged the Republican right to challenge the institution's
dual mandate: to work toward price stability and maximized employment. The priority
of the U.S. Federal Reserve in the current scenario is to minimize the threat
of deflation, which would have destructive consequences to both the political
order and social fabric. On the other side of the Atlantic, in the name of
public interest, the hawkishly orthodox European Central Bank is also resorting
to heterodox methods, namely European monetary union and the preservation of the
euro.
The Beijing authorities, for
their part, refuse to allow the appreciation of their currency, which is artificially
pegged to the dollar to preserve China's export drive. They claim that it's for
the United States to make the difficult adjustments in terms of ultra-orthodox
fiscal and monetary discipline, which would equate to deflation and higher
unemployment.
In this unstable situation,
the simplistic reaction by Brazilian authorities to the FED's policies is
ironic. Left-wing Keynsian responses were sought and correctly put forward, imposing
counter-cyclical policies to confront the global crisis. But Brasilia holds the
United States responsible for currency manipulation, and thereby discards three
relevant facts. First, that although the weak dollar is in fact a problem for
emerging nations with appreciating currencies, this is only a by-product of the
FED's reflation policies. Second, the appreciation of the Brazilian real is
also due to investment opportunities offered by other emerging nations, none of
which have anything to do with U.S. monetary policy. Third, the artificial
appreciation of China's currency works well for a growth strategy based on
exports, but being ultra-nationalistic doesn't serve the cause of improving the
state of global governance, which is what our authorities speak on behalf of.
Relative independence from
the United States is one of the hallmarks of traditional Brazilian diplomacy, which
is averse to automatic alignments (aka/bandwagoning). Another is pragmatism.
Together, they mean that a negative emphasis should be put on “automatic,” as
we must also include automatic dis-alignment with the United States - the typical
anti-American bias. Confronted with this unstable global picture, it's fitting
for the B in BRIC, with our esteem for peace in foreign exchange, to cultivate
our leadership talents within the G-20. This means coordinating and developing cooperative
solutions with the other emerging democracies to minimize the impact of currency
appreciation.
An ideological bias distorts
perceptions of our interests as well - particularly when it comes to making operational
Central Bank autonomy into de jure legal autonomy. In just the last six
days, the issue has been brought out in the open. Looking at it positively,
there are episodes that create the picture of relative continuity: increased bank
reserve requirements, tributes to outgoing Central Bank President Henrique Meirelles
[video interview above] and the appointment of his successor, Alexandre Tombini. At the same time, there
are the views of Senator Francisco Dornelles,
who holds that legal status should be accorded the Bank's operational autonomy.
He'll give evidence to the Senate Committee on Economic Affairs. This well
illustrates the difficulties that recur whenever the institution's de jure
autonomy is put on the agenda.
The concerns of the senator highlight
the difficulties, more imaginary than real, that add needless tension to the
debate in Brazil. If approved, the measure would only come into force in 2015
and be validated by the current president's successor. The arguments highlight
this, “with respect to the prerogatives of President Dilma Rousseff "
because "we can give the impression that we're creating an atmosphere of
distrust in the president, which we do not want to do.” Such care attests to
the permanence of conservative elements in our political culture, which are heavily
deployed when it comes to the current topic.
On the one hand, we could continue
the trend of postponing a decision seen eight years ago, during the transition
from the Fernando Henrique Cardoso government to Lula. On the other, an erroneous
identification of the problem as one of institutional structure, which should
be debated with a view to the long term and restricted to people who exercise
constituted official authority. This is to say nothing of how de jure operational
autonomy will also institutionalize the powers of the National
Monetary Council, the body that determines inflation targets and the
members of which must be appointed by the president, the finance minister, planning
minister or president of the Central Bank.
Posted by WORLDMEETS.US
Those with an ideological
bias or Anti-Americanism lose sight of two relevant points. One, the importance
of debating the Central Bank's institutional design. Two, what we can learn
from the United States. For it's in times of systemic crises that the
institutional design of an institution is put to the test. It's at such times
that it reveals its capacity to absorb shock without institutional breakdown or
losing its effectiveness in terms of governance.
Today's global crisis shows
that the FED's flexibility is inherent in its institutional design, i.e., the
FED is inseparable from its dual mandate. Under the impact of the crisis in the
1930s, U.S. lawmakers delegated to the FED chairman and the board he presides
over the responsibility and (awesome) power to reconcile economic stability
with maximizing employment and remaining in tune with prevailing circumstances.
Which is why faced with runaway inflation in the 1970s, its then Chairman Paul Volker
could target the goal of stability; while today, without violating the
Constitution, Ben Bernanke can favor maximizing economic activity and
employment. If we didn't have anti-Americanism, we have to appreciate the
advantages of the FED's flexible design.
*Lourdes Sola, Phd in
political science from Oxford University, retired professor from University of
São Paulo and member of the Brazilian Academy of Sciences