Brazil says it won't let U.S. 'melt the dollar'

Section:

By Robin Yapp
The Telegraph, London
Wednesday, January 5, 2011

http://www.telegraph.co.uk/finance/currency/8241635/Brazil-pledges-to-st...

SAO PAULO, Brazil -- Brazil has sounded a new note of warning in the international "currency war" by pledging not to allow the United States to "melt the dollar."

Guido Mantega, the Brazilian finance minister, raised the prospect of introducing greater controls on short-term flows of speculative capital into his country.

The Brazilian real has risen more than 35 percent against the dollar since early 2009, leading some economists to label it the most overvalued currency in the world.

There is widespread concern about the effects of a weaker dollar on the competitiveness of emerging markets, many of which have seen foreign investment send their currencies soaring.

... Dispatch continues below ...



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"We're not going to allow our American friends to melt the dollar," said Mr Mantega, who views the US government's move to pump $600 billion into its economy as an unfair attempt to help exports

"There are infinite measures that we can take. One of them is to manage the entry of speculative capital in the short-term."

His comments came after Chile's central bank announced a plan to buy $12 billion on international markets on Monday in an attempt to stem its own currency appreciation.

The Chilean peso has gained by more than 17 percent against the US dollar since June, fuelled by increases in the price of copper, which is Chile's biggest export.

It was Mr Mantega who coined the term "currency war" last year as he voiced concerns that Brazilian exports were being damaged. In October he tripled the tax on foreign investments in some bonds to 6 percent, a measure he said had since been "effective."

Brazil plans to make "considerable" cuts in government spending, which would help weaken the real and allow interest rates to be cut at some point from the current level of 10.75 percent.

The "currency war" has been of particular concern to Brazilian manufacturing companies, which have suffered due to booming demand for cheap imports from China, which has been accused of keeping its currency artificially weak.

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