The role of the central bank
The stability of the purchasing power of the Brazilian currency and the soundness of the financial system are the main Banco Central do Brasil's institutional objectives. As set forth by CMN's Resolution 2,882, it is up to it to promote the soundness, normal functioning and improvement of the Brazilian payment system, and, as already mentioned, it is responsible for authorizing and overseeing clearing and settlement systems, including those that settle securities, foreign exchange and derivatives transactions1. Additionally, according to Law 10,214, it's up to the Banco Central do Brasil to define which settlement systems are systemically important. The institution is also settlement service provider and in this role operates the STR and the SELIC, respectively a funds transfer system and a government securities settlement system.
To make some of its responsibilities operative, the Banco Central do Brasil provides bank reserves accounts which are mandatory for institutions taking sight deposits, excluding credit unions, and are optional for investment banks and foreign exchange transactions banks. Through these accounts, banks fulfill reserves requirements set by the Banco Central do Brasil and they are used for settlement purposes as well. Each bank keeps a single, centralized account.
In Brazil, a legal provision sets that a bank taking sigh deposits cannot hold an account in another bank. Therefore, except for payments made in cash or those made within a bank --the payer and the payee are clients of the same bank--, all payments have their final settlement in the bank reserves accounts. As set in the Federal Constitution, the Banco Central do Brasil is the exclusive depository of the National Treasury funds. Entities operating systemically important deferred net settlement systems should also maintain account at the Banco Central do Brasil to settle the net results they calculate in each settlement session.
To ensure a smooth performance of the Brazilian payment system in the real-time settlement environment, the Banco Central do Brasil extends fully collateralized, unlimited and free of charge intraday credit facility to reserves account holders.