The liquidity of financial assets and “zeragem automática” of the market

This article stresses the pertinence of the concepts of indexed money, as well as of excessive liquidity of financial assets, for the analysis of stabilization programs in Brazil. The author criticizes the analysis of A. C. Pastore, who stresses the problems associated to the so-called “zeragem automática” (the automatic financing of financial institutions’ overnight positions by the Brazilian Central Bank throughout the eighties). It is argued here that the “run” of investors away from certain financial assets should be understood as increases in the number of transactions rather than merely as a larger demand for currency, since the funds withdrawn return to the banks at once and withdrawals can be made even when undesired by the Central Bank. This article insists on the difficulties brought by combinations of a high amount of quasi-money with fiscal and exchange pressures that are strongly expansionary, including pressures arising from the servicing of the public debt, and suggests that such difficulties may have led the Central Bank to provide automatic financing as mentioned.

KEYWORDS:
Inflation; central bank; stabilization