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Bill proposes using Central Bank’s international reserves to fight Covid-19

. May 19, 2020
central bank Brazil's Central Bank. Photo: ABr

A bill authored by Senator Paulo Rocha aims to increase the healthcare budget using BRL 312 billion raised by the Central Bank in foreign exchange operations since the beginning of the year. The proposal would revoke a previous law that, in the name of fiscal austerity, prohibited such a move. The idea is to order the Central Bank to transfer these funds to the Public Treasury within 15 days of the law’s approval. 

At least half of the resources would be distributed to states and municipalities, and the funds must only be used for “public health emergency actions.”

In order to reach its purpose, the bill temporarily revokes a law stating that any positive result obtained by the Central Bank’s foreign exchange operations must be kept as reserves for eventual losses. Previously, the bank would transfer its foreign exchange-related profits to the treasury, which, in turn, would cover the bank’s losses with public bonds.

Between 2008 and 2018, the Central Bank transferred BRL 709.2 billion to the treasury as a result of currency exchange rate fluctuations on Brazil’s international reserves. By changing this practice, the objective was to “eliminate the possibility of covering primary debt — directly or indirectly — with resources from Central Bank’s foreign exchange operations and, at the same time, diminishing the expansion of the public debt.”

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Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Before joining The Brazilian Report, she worked as an editor for Trading News, the information division from the TradersClub investor community.

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