Accounting for foreign exchange operations and its implications for monetary policy implementation: international experience and the case of Brazil

  • Joao Pedro Scalco Macalos Université Paris 13 - Sorbonne Paris Cité
Keywords: Central bank accounting, monetary policy, foreign exchange policy, reverse repurchase agreements

Abstract

Central banks play a unique role in the payment systems and in the issuance of their currencies. Therefore, they cannot become illiquid. However, persistent losses can undermine their credibility. The law 11,803 diminished the possibility of negative results at the Brazilian Central Bank (BCB) by isolating and transferring its foreign exchange results to the Treasury. It also created an asymmetrical distribution scheme that automatically supplies the BCB with the necessary bonds to execute its liquidity management operations and assured the accounting hedge of the foreign exchange swaps, enhancing its autonomy. The main drawbacks of this legislation are the lack of transparency and the increased frequency of transfers between the BCB and the Treasury. However, the expansion of the reverse repos is tied to the accumulation of international reserves and to the interest rate differential between foreign assets and local liabilities and would have happened regardless of the monetary policy instrument.

Downloads

Download data is not yet available.

Author Biography

Joao Pedro Scalco Macalos, Université Paris 13 - Sorbonne Paris Cité

Centre d'Économie Paris Nord

PhD Candidate

References

Aizenman, J. (2008). Large Hoarding of International Reserves and the Emerging Global Economic Architecture, Manchester School, vol. 76, no. 5, p. 487–503. https://doi.org/10.1111/j.1467-9957.2008.01072.x

Aizenman, J. and Lee, J. (2007). International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence, Open Economies Review, vol. 18, no. 2, p. 191–214. https://doi.org/10.1007/s11079-007-9030-z

Aizenman, J., Lee, J., and Sushko, V. (2012). From the great moderation to the global crisis: exchange market pressure in the 2000s, Open Economies Review, vol. 23, no. 4, p. 597–621. https://doi.org/10.1007/s11079-011-9228-y

Archer, D. and Moser-Boehm, P. (2013). Central Bank Finances. Bank for International Settlements BIS Papers n.71., 93 p.

Bacha, E. (2016). A Crise Fiscal e Monetária Brasileira. Rio de Janeiro: Ed. Civilização Brasileira.

BCB. (2013). Comunicado No 24.370. Banco Central do Brasil.

BCB. (2015). Demonstrações Financeiras 2015. Banco Central do Brasil, 31 p.

Bell, S. (2001). The Role of the State and the Hierarchy of Money, Cambridge Journal of Economics, vol. 25, no. 2, p. 149–63. https://doi.org/10.1093/cje/25.2.149

Bholat, D. and Darbyshire, R. (2016). Accounting in Central Banks. Bank of England Staff working paper n.604.

Bignon, V., Biondi, Y., and Ragot, X. (2009). An Economic Analysis of Fair Value: Accounting as a Vector of Crisis. Cournot Centre Prisme n.15.

Bindseil, U. (2004). Monetary Policy Implementation: Theory, Past, and Present. Oxford: Oxford University Press.

Bindseil, U., Manzanares, A., and Weller, B. (2004). The role of central bank capital revisited. European Central Bank n.392.

Biondi, Y. (2011). The Pure Logic of Accounting: A Critique of the Fair Value Revolution, Accounting, Economics, and Law, vol. 1, no. 1, https://doi.org/10.2202/2152-2820.1018

Brasil. (2008). Exposição de motivos para adoção da medida provisória no 435

Buiter, W. (2007). Seigniorage, Economics - The Open-Access, Open-Assessment E-Journal, vol. 1, p. 1–49. https://doi.org/10.3386/w12919

Buiter, W. H. (2008). Can Central Banks Go Broke? Centre for Economic Policy Research CEPR Policy Insight n.24.

Bunea, D., Karakitsos, P., Merriman, N., and Studener, W. (2016). Profit Distribution and Loss Coverage Rules for Central Banks. European Central Bank Occasional paper series n.169., 57 p.

Bussière, M., Cheng, G., Chinn, M. D., and Lisack, N. (2015). For a few dollars more: Reserves and growth in times of crises, Journal of International Money and Finance, vol. 52, p. 127–45. https://doi.org/10.1016/j.jimonfin.2014.11.016

Calvo, G. (1998). Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops, Journal of Applied Economics, vol. 1, p. 35–54. https://doi.org/10.1080/15140326.1998.12040516

Carbone, C. and Gazzano, M. (2016). Relação entre operações compromissadas, reservas cambiais e a conta única. In: Bacha, E. (ed.), A crise fiscal e monetária brasileira, Rio de Janeiro: Civilização Brasileira, p. 315–27.

Caruana, J. (2013). Preface to Archer and Moser-Boehm. In: Archer, D. and Moser-Boehm, P. (eds.), Central Bank Finances, BIS.

Carvalho Jr., A. C. C. D. (2016). BC e Tesouro: um estudo sobre a Constituição, leis complementares, leis ordinárias e medidas provisórias. In: Bacha, E. (ed.), A crise fiscal e monetária brasileira, Rio de Janeiro: Civilização Brasileira, p. 153–86.

Cervantes, A. R. (2007). La capitalización de los bancos centrales y las normas internacionales de contabilidad, Boletín, vol. LIII, no. 1, p. 13–16.

Chiacchio, F., Claeys, G., and Papadia, F. (2018). Should we care about central bank profits? Bruegel Policy contribution n.13., date last accessed at https://bruegel.org/2018/08/should-we-care-about-central-bank-profits/.

De Conti, B. M. (2016). As Relações Entre o Tesouro Nacional e o Banco Central Do Brasil. IPEA Relatório de pesquisa.

De Conti, B. M., Prates, D. M., and Plihon, D. (2014). A Hierarquia Monetária e Suas Implicações Para as Taxas de Câmbio e de Juros e a Política Econômica Dos Países Periféricos, Economia e Sociedade, vol. 23, no. 2(51), p. 341–72. http://dx.doi.org/10.1590/S0104-06182014000200003.

De Grauwe, P. and Ji, Y. (2013). Fiscal Implications of the ECB’s Bond Buying Program, Open economies review, vol. 24, no. 5, p. 843–52. https://doi.org/10.1007/s11079-013-9284-6

Dhar, S. (2012). Reserve Accumulation and Global Financial Stability: A Critical Assessment of IMF Concerns. Independent Evaluation Office of the International Monetary Fund IEO background paper n.BP/12/03., 41 p.

Eichengreen, B. and Hausmann, R. (1999). Exchange rates and financial fragility. National Bureau of Economic Research n.7418., date last accessed at http://www.nber.org/papers/w7418.

Eichengreen, B., Hausmann, R., and Panizza, U. (2007). Currency Mismatches, Debt Intolerance, and the Original Sin: Why They Are Not the Same and Why It Matters. In: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, University of Chicago Press, p. 121–70.

Erhart, S., Kicsák, G., Kuti, Z., Molnár, Z., Monostori, Z., and Others. (2013). Doing It Differently or The Impact of the Financial Crisis on Central Bank Balance Sheets in Emerging Economies, MNB Bulletin, vol. 8, no. Special, p. 46–60.

European Union. (2016). On the legal framework for accounting and financial reporting in the European System of Central Banks.

Farhi, M., Prates, D. M., and Abouchedid, S. (2018). Derivativos de câmbio e relação Banco Central-Tesouro: o caso do Brasil. In: O Brasil pós-recessão: das origens da crise às perspectivas e desafios futuros, Associação Keynesiana Brasileira, p. 13-23.

Filardo, A. J. and Yetman, J. (2012). The Expansion of Central Bank Balance Sheets in Emerging Asia: What Are the Risks? Bank for International Settlements BIS quarterly review.

Fischer, S. (2001). Opening remarks at the IMF/World Bank international reserves: Policy Issues Forum:, Washington D.C.

Frait, J. and Holub, T. (2010). Exchange Rate Appreciation and Negative Central Bank Capital. In: The capital needs of central banks, Routledge.

Fry, M. J. (1993). The fiscal abuse of central banks. International Monetary Fund n.93/58.

Furtado, C. (1961). Desenvolvimento e subdesenvolvimento. Rio de Janeiro: Ed. Fundo de cultura.

Gallo, R. A. (2016). Banco Central e Tesouro: conjecturas sobre as consequências práticas de um relacionamento íntimo. In: Bacha, E. (ed.), A crise fiscal e monetária brasileira, Rio de Janeiro: Civilização Brasileira, p. 271–93.

Garcia, M. and Afonso, J. R. (2016). Regras fiscais e volatilidade cambial. In: Bacha, E. (ed.), A crise fiscal e monetária brasileira, Rio de Janeiro: Civilização Brasileira, p. 329–45.

Godley, W. and Lavoie, M. (2007). Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. Palgrave Macmillan.

Goldstein, M. and Turner, P. (2004). Controlling Currency Mismatches in Emerging Markets. Peterson Institute for International Economics.

Gonzalez, R. B., Khametshin, D., Peydro, J.-L., and Polo, A. (2019). Hedger of last resort: evidence from brazilian FX interventions, local credit and global financial cycles. Bank for International Settlements n.832.

Guardia, E. R. (2016). Conta única do tesouro: flexibilidade necessária e seus bons e maus usos. In: Bacha, E. (ed.), A crise fiscal e monetária brasileira, Rio de Janeiro: Civilização Brasileira, p. 297–314.

IEO. (2012). International Reserves: IMF Concerns and Country Perspectives. Independent Evaluation Office of the International Monetary Fund.

IMF. (2011). Assessing Reserve Adequacy. International Monetary Fund.

Kaltenbrunner, A. (2015). A Post Keynesian Framework of Exchange Rate Determination: A Minskyan Approach, Journal of Post Keynesian Economics, vol. 38, no. 3, p. 426–48. https://doi.org/10.1080/01603477.2015.1065678

Keynes, J. M. (1971). Treatise on Money: Pure Theory of Money Vol. I. The collected writings of John Maynard Keynes, London: Macmillan, London.

KPMG. (2012). Current Trends in Central Bank Financial Reporting Practices. KPMG.

Lavoie, M. (2014). Post-Keynesian Economics: New Foundations. Cheltenham: Edward Elgar Publishing.

Lo Vuolo, R. and Pereira, J. M. (2018). De la pérdida de soberanía monetaria a la pérdida de soberanía política: Los ejemplos de argentina y grecia. CIEPP Documentos de trabajo n.101.

Macalós, J. P. S. (2018). ‘A relação entre as intervenções cambiais de mercado do Banco Central do Brasil e o ciclo global de liquidez entre 2003 e 2016’. Master Thesis, Universidade Estadual de Campinas.

Macedo e Silva, A. C. (2016). O Que Mostram as Demonstrações? Balanços e Resultados Dos Bancos Centrais. IPEA Texto para discussão n.2224.

Marins, J., Araujo, G., and Vicente, J. (2015). As Atuações Cambiais Do Banco Central Afetam as Expectativas de Mercado? Banco Central do Brasil Textos para discussão n.393.

Mendes, M. (2016). A Lei 11.803/2008 e a Relação Financeira Tesouro-Banco Central. Senado Federal Núcleo de estudos e pesquisas da consultoria legislativa n.189.

MSCI. (2019). MSCI market classification framework. Morgan Stanley Capital International, date last accessed December 23, 2019, at https://www.msci.com/documents/1296102/1330218/MSCI_Global_Market_Framework_2019.pdf/57f021bc-a41b-f6a6-c482-8d4881b759bf.

Nagel, J. (2012). Understanding Central Bank Balance Sheets, The International Economy Magazine, vol. 26, no. 3

Prates, D. M. (2015). O Regime de Câmbio Flutuante No Brasil 1999-2012: Especificidades e Dilemas. Brasília: IPEA.

Prates, D. M. (2017). Monetary sovereignty, currency hierarchy and policy space: a post-Keynesian approach. Instituto de Economia - Unicamp Textos para discussão n.315.

Reinhart, C. and Calvo, G. (2000). When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options. University Library of Munich, Germany MPRA Paper.

Robinson, D. J. and Stella, P. (1993). Amalgamating central bank and fiscal deficits. In: Blejer, M. I. and Cheasty, A. (eds.), How to measure the fiscal deficit, Washington D.C.: International Monetary Fund, p. 236–58.

Rodrik, D. (2006). The Social Cost of Foreign Exchange Reserves, International Economic Journal, vol. 20, no. 3, p. 253–66. https://doi.org/10.1080/10168730600879331

Schwarz, C., Polychronis, K., Niall, M., and Werner, S. (2015). Why Accounting Matters: A Central Bank Perspective, Accounting, Economics, and Law: A Convivium, vol. 5, no. 1, p. 1–42. https://doi.org/10.1515/ael-2014-0023

Stella, P. (1997). Do central banks need capital? International Monetary Fund n.97/83.

Stella, P. (2005). Central bank financial strength, transparency, and policy credibility. IMF staff papers n.52(2)., 335–65 p.

Sullivan, K. (2000). Transparency in central bank financial statement disclosures. International Monetary Fund n.00/186.

Sweidan, O. (2011). Central bank losses: causes and consequences, Asian-Pacific Economic Literature, vol. 25, no. 1, p. 29–42.

Teijeiro, M. O. (1989). Central bank losses: origins, conceptual issues, and measurement problems. The World Bank n.293.

Tesouro Nacional. (2013). A Relação Entre a Autoridade Fiscal e Autoridade Monetária: Experiência Internacional e o Caso Brasileiro. Tesouro Nacional.

Vaez-Zadeh, R. (1991). Implications and remedies of central bank losses. In: Downes, P. and Vaez-Zadeh, R. (eds.), The evolving role of central banks, p. 69–92.

Viana, M. F. (2018). ‘A Lei no 11.803 de 2008 e a relação entre o Banco Central do Brasil e o Tesouro Nacional: o caso brasileiro à luz das experiências internacionais’. Master Thesis, Universidade Estadual de Campinas.

Wray, L. R. (2015). Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems. Springer.

Published
2020-11-13
How to Cite
Scalco Macalos, J. P. (2020). Accounting for foreign exchange operations and its implications for monetary policy implementation: international experience and the case of Brazil. Brazilian Keynesian Review, 6(1), 100-140. https://doi.org/10.33834/bkr.v6i1.169
Section
Articles