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The Constitution, interest and the economy

Author

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  • Clovis de Faro

Abstract

The promulgation of the Brazilian Constitution of l988, reinstated the so-calledUsury Law. According to this old regulament, which was never revoked but that was madeineffective due to the extremely high rates of inflation that we have been experiencing sincea long time ago, the rate of interest, in nominal terms, cannot exceed 12% yearly. Aiming toinnovate, while at the same time ignoring the ever-present law of supply and demand, the1988 Constitution established that ceiling in real terms. The paper focuses not only on thedifficulties of measuring the effective rate of interest that is charged on bank loans, but alsoon the almost impossible task of measuring it in real terms. The unavoidable conclusion isthat this new version of the Usury Law will be also rendered ineffective in practice. JEL Classification: E43; E52; G28.

Suggested Citation

  • Clovis de Faro, 1994. "The Constitution, interest and the economy," Brazilian Journal of Political Economy, Center of Political Economy, vol. 14(1), pages 45-56.
    • Handle: RePEc:ekm:repojs:v:14:y:1994:i:1:p:45-56:id:1268
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    More about this item

    Keywords

    Interest; usury laws; inflation;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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