Brazil declares new 'currency war' against foreign devaluations
By Samantha Pearson
Financial Times, London
Thursday, March 1, 2012
SAO PAULO, Brazil -- Brazil has declared a fresh "currency war" on the United States and Europe, extending a tax on foreign borrowings and threatening further capital controls in an effort to protect the country's struggling manufacturers.
Guido Mantega, the finance minister who was the first to use the controversial term in 2010, said the government would not "sit by passively" as developed nations continue to pursue expansionary monetary policies at the expense of Brazil.
"When the real appreciates, it reduces our competitiveness. Exports are more expensive, imports are cheaper, and it creates unfair competition for businesses in Brazil," he said on Thursday after announcing changes to the so-called IOF tax.
... Dispatch continues below ...
A Rare Opportunity with Collectible Gold Coins
Whose Premiums Are Far Below Normal
Sovereign debt problems in the United States as well as Europe will worsen this year. The mainstream financial media may never report about the likely inflationary consequences of bailouts and "quantitative easing," nor are they likely ever to recommend tangible assets for financial protection. But at Swiss America Trading Corp. we believe that it is no longer a luxury to own gold and silver coins but rather a necessity.
At the moment the public is showing little interest in Double Eagle U.S. $20 gold coins, so the price premiums above the intrinsic melt values (.9675 ounce of gold in each coin) are historically low. The ratio of price to bullion content for these coins has been 2:1 but today it is only about 1.25:1.
This is a real opportunity. So give us a call or e-mail and we will be glad to discuss the potential of these coins and how to use a ratio strategy to increase your gold ounces without money out of pocket.
In the January edition of his Early Warning Report, Richard Maybury writes: "As they are inherently in very limited supply, I believe that high-quality numismatics will become tulips, eventually rising a thousand percent or more in real terms, when money velocity goes into mid-second stage. In late stage, who knows -- 2,000 percent? 3,000?"
All inquiries will receive without charge (while supplies last) our latest book, "The Inflation Deception," as well as our newsletter "Real Money Perspectives."
-- Tim Murphy, email@example.com
-- Fred Goldstein, firstname.lastname@example.org
In a presidential decree, the government extended the existing 6 per cent financial transactions tax on overseas loans maturing in up to three years. Previously the levy was applied only to loans with maturities of under two years.
President Dilma Rousseff later weighed in on the debate, vowing to defend Brazilian industry and stop developed countries' policies from causing the "cannibalisation" of emerging markets.
The move comes as Brazil's central bank also steps up direct intervention in the market, selling dollars and offering derivatives called reverse currency swaps to curb the real's near 9 per cent surge against the U.S. dollar this year.
Brazil was one of the first emerging markets to speak out against the loose monetary policy of richer nations in the wake of the financial crisis, which it blamed for directing a flood of hot money to the country and overvaluing the real.
Although the crisis in the eurozone eased pressure on Brazil's currency late last year, a flurry of debt issuance this year has made the real one of the biggest gainers of 2012.
Countries from Colombia to Thailand have also followed suit with their own currency measures, and even the International Monetary Fund was seen to tacitly endorse the use of capital controls last April, giving Brazil's government further ammunition.
These currency intervention practices "were always just in reserve but today they are even recommended by the IMF," Mr Mantega said on Thursday. "The IMF didn't think this way and then they started to think this way mainly after Brazil introduced intervention measures which have been successful."
However, analysts doubt that such short-term measures will be enough to significantly change the direction of Brazil's currency.
"There is nothing they can do to really prevent the real from appreciating; they can just delay it from appreciating," said Italo Lombardi, Latin America economist at Standard Chartered.
He added that Thursday's measure would also have little effect because the average maturity of Brazilian bond placements abroad is much longer than three years.
After the announcement on Thursday, the real actually strengthened in midday trade to around 1.71 per dollar.
* * *
Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:
Or by purchasing a colorful GATA T-shirt:
Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
Free Month Subscription to Market Force Analysis for GATA Supporters
Market Force Analysis is a unique, patent-pending approach to commodity market analysis. An algorithm has been developed to extract supply and demand weightings from futures market data. The difference between supply and demand is the market imbalance that is called "market force," so named because it is what drives price. It brings clarity to past market action and predicts market trends. Because it is derived from accurate futures market data it is not subject to the errors inherent in macro-level estimates of supply and demand.
Learn more here:
Market Force Analysis focuses on short-term (15 days) and medium-term price predictions to help both short-term traders and long-term investors understand market moves and benefit from the generated prediction of prices. To read subscriber comments that show how much the service is appreciated, visit:
The MFA service has been pioneered by market analyst and Gold Anti-Trust Action board member and researcher Adrian Douglas.
The Market Force Analysis premium service provides:
-- A bi-weekly report.
-- Access to the MFA hot list of junior mining stocks derived from analysis of more than 800 mining stocks. The MFA hot list consistently outperforms well-known mining share indices like the HUI, GDX, and GDXJ.
-- E-mail alerts about actionable trades.
-- E-mail updates with important information.
To obtain your 1-month free trial subscription to the Market Force Analysis letter, e-mail email@example.com and put "MFA Free Trial" in the subject field.