Foreign Exchange Control Rules

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Brazil has recently implemented significant changes to its foreign exchange control rules, aiming to simplify and modernize the system.
What are the main aims and objectives?

The simplification of Foreign Exchange Control is designed to modernize, streamline, and consolidate the country's foreign exchange legislation. The main objectives include reducing bureaucracy, lowering operational costs, and aligning Brazil's policies with international standards, particularly those of the Organization for Economic Cooperation and Development (OECD). These changes are designed to enhance Brazil's competitiveness in the global market, attract foreign investment, and facilitate international business transactions. Additionally, the reforms aim to strengthen the convertibility of the Brazilian real, foster the use of Brazilian currency abroad, and create a more favorable environment for financial institutions to offer services both domestically and internationally.

How does the program work?

One of the key aspects of this simplification is the reduction of classification codes for foreign exchange transactions. The Central Bank of Brazil has reduced the number of codes from 174 to 95, and for transactions up to USD 50,000, only 10 simplified codes are now required. This change significantly reduces the complexity of classifying foreign exchange transactions, making the process more straightforward for both individuals and businesses.

The new framework also grants more autonomy to financial institutions in formalizing foreign exchange transactions. The execution of exchange agreements is no longer required for closing FX transactions, which can now be carried out through various means such as telephone calls, WhatsApp, or email. This flexibility allows for quicker and more efficient processing of foreign exchange operations.

Another important change is the relaxation of foreign capital registration. The new rules have simplified the registration process, focusing on easing procedures related to small transactions. This is expected to reduce transaction costs and attract more investments to the country. The old model of foreign capital registration has been replaced with a new model of information provision, eliminating the need for pre-registration of foreign capital entry in Brazil.

The simplification also extends to the use of foreign currency within Brazil. The list of transactions that can be paid in foreign currency has been expanded, and Brazilian banks are now allowed to offer foreign currency accounts, although this is still subject to further regulation by the Central Bank. Additionally, private offsetting of credits and debits between residents and non-residents through simple accounting entries is now permitted.

What is the overall cost?

There is no information available about the cost of modernizing the system.

How was it implemented?

The simplification of Foreign Exchange Control Rules in Brazil was created through a comprehensive legislative and regulatory process that aimed to modernize, streamline, and consolidate the country's foreign exchange legislation. This process culminated in the enactment of Federal Law No. 14,286 on December 29, 2021, which came into effect on December 31, 2022.

The creation of this new legal framework began with Draft Bill 5,387/2019, which was introduced in the Brazilian Congress. After more than two years of deliberation and refinement, the bill was passed and signed into law. The law's primary objective was to revamp the existing legislation regarding the Brazilian foreign exchange market and the regulations applicable to both Brazilian capital investments abroad and foreign capital investments in Brazil.

Following the enactment of the law, the Central Bank of Brazil (BCB) played a crucial role in developing the detailed regulations to implement the new framework. Throughout 2022, the BCB conducted three public consultations to gather input from market participants and stakeholders about the specifics of the new law. This collaborative approach ensured that the regulations would address the needs and concerns of those directly affected by the changes.

The BCB then issued several resolutions to operationalize the new law, including Resolution No. 277 of December 31, 2022, which regulated aspects of the foreign exchange market under the Central Bank's purview. Additional resolutions, such as No. 278 and No. 281, were also issued to introduce innovations aimed at reducing bureaucracy in foreign investments by simplifying the Central Bank's reporting requirements.

This process of creating the simplified Foreign Exchange Control Rules in Brazil represents a significant shift from the previous system, which was characterized by a patchwork of outdated laws and regulations. The new framework consolidates the rules into a single, concise, and principle-based normative instrument, granting more flexibility to the Central Bank and the National Monetary Council to adapt regulations to market needs and international standards.

What impact has been measured?

There is not yet any available information about the impact of the system changes. 

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom