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Brazil battles to curb currency rally

Source: Reuters

The government and the central bank have taken increasingly aggressive measures in the market. Brazil reals per dollar (inverted scale)

1.60

1.65

1.70

1.75

1.80 July

Aug

Sept

Oct

July 23:

Sept 8:

Sept 20:

Sept 27:

Oct 4:

Oct 18:

Central bank tests demand for reverse currency swaps (futures market intervention)

Central bank starts calling two auctions per day to buy U.S. dollars

Government authorizes the use of its sovereign wealth fund to buy dollars in the spot market

Finance Minister Mantega says world is engaged in a “currency war,” making the term famous worldwide

Government doubles tax on bond purchases by foreigners to 4 percent

Tax on foreign bond purchases raised to 6 pct, tax on derivative margins raised

the world from buying Brazilian fi xed

in November that the IMF develops and

income assets. To add insult to injury, the

maintains a currency-manipulation index.

US’ Federal Reserve’s constant attempts

Mantega told Brazilian newspaper O Globo

to lower rates seem to be highly correlated

that “The IMF would have to come up with a

with the weakening of the dollar, and therefore, the strengthening of the Real. Seeing little result from the 2% tax, Brazilian Finance Minister Guido Mantega doubled

the

tax

on

foreign

portfolio

The government did not tax foreign direct investments...

investments in Real-denominated assets to 4% in early October 2010, after declaring that an “international currency war has

method to measure which currencies refl ect

broken out” in late September 2010. Still

the structural situation of their countries,

not enough, the country raised the tax on

which are floating currencies, and which

portfolio bond investments a further 2%,

ones are forcing their hand.” On top of this,

totaling 6% taxation.

Brazil has already acquired $5.9 billion US

But gone are the days when Brazilian central bankers and Finance Ministers would just watch and moan about a changing

dollars in an attempt to contain further devaluation of the greenback Despite the feeling that the global

It seems that Brazilian

currency war is in full swing, one has to be

officials have developed the courage to

amazed at how far Brazil has come. From

implement change, as opposed to react to it.

being fearful of the IMF, a long-standing

Taking advantage of Brazil’s unprecedented

symbol of “American imperialism” in the

importance as a source of global economic

early 90s, Brazil is now in a position where

growth, Mantega and company have claimed

it can confidently suggest policy changes

that they shall propose in the G20 meeting

to its former creditor. iBR

macro landscape.

FA L L 2 0 1 0

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11/27/2010 3:13:11 PM

Profile for Daniel Hellwig

International Business Review - Fall 2015  

Fall edition of the IBR magazine at the Wharton School.

International Business Review - Fall 2015  

Fall edition of the IBR magazine at the Wharton School.

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