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would draw down its Banking Reserves Account at the Central Bank
below the legally required minimum level, the Central Bank would
advance Banco do Brazil funds sufficient to replenish and maintain
its reserves account at the required level. The Central Bank would
level Banco do Brazil’s reserves account daily. (Banco do Brazil
and the Central Bank each maintained a movement account in which
they kept track of the funds the Central Bank advanced to Banco do
Brazil.)
The Central Bank financed the Brazilian Government’s operations
and the governmental functions that Banco do Brazil carried out
through its issuance of (1) Brazil’s currency and (2) governmental
securities in the name of the National Treasury. Essentially, the
automatic transfer mechanism previously described (whereby the
Central Bank provided funds to Banco do Brazil though crediting its
Banking Reserves Account) recognized and reflected that the
Brazilian Government ultimately financed the governmental functions
that Banco do Brazil and the Central Bank carried out.11
11 The record does not reveal whether daily surplus funds
in the Banking Reserves Account were turned over to Banco do
Brazil or whether the Central Bank kept such surpluses in
repayment of the funds it had advanced. When the caixa unico
system ended in 1987, the Central Bank was owed several billions
of dollars by Banco do Brazil. The liability of Banco do Brazil
to the Central Bank, however, was offset by an equivalent
liability that the National Treasury owed to Banco do Brazil. In
ending the caixa unico system, a novation was effected whereby
Banco do Brazil’s liability to the Central Bank was canceled and
the National Treasury directly assumed the liability that Banco
do Brazil owed to the Central Bank.
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