Brazil to Alter Forex Rules
In a thinly disguised effort to stem the appreciation of its currency, Brazil has announced sweeping changes to its rules governing forex. Rather than revert to outright intervention in the forex markets, however, Brazil will permit businesses to hold more foreign currency as part of their reserves. In this way, the Central Bank won’t have to purchase Dollar-denominated assets directly. Instead, it is hoping that the natural attraction of US and other Western capital markets will be enough to drive private Brazilian companies to increase their holdings abroad. It is intended that this will act against the upward pressure on the Real, which rose 20% against the Dollar in 2007, and 5% already in 2008, and now threatens to drag down the economy. Dow Jones reports:
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The strong real has made some Brazilian manufactured exports such as textiles and footwear less competitive. Meanwhile, it also has introduced a boom in imports resulting in a narrowing of the country’s trade surplus.
