Political Risk Latin America Blog @PolRiskLatam

Brazil: another currency salvo

Posted in News and Articles, Political Risk by politicalrisklatam on January 6, 2011

by Barney Jopson for Financial Times – Beyond Brics, January 6th, 2011.

Brazil’s new government has said it will do everything it can to stem the appreciation of its currency, the real, and it’s just taken another step by moving to discourage short selling of the dollar.

In a statement (in Portuguese) on its website, the central bank said on Thursday that it would introduce reserve requirements for financial institutions with dollar short positions.

Those institutions will be required to lodge a deposit with the central bank that must be equal to 60 per cent of the difference between the size of the short position and either $3bn or the institution’s tier one capital, whichever of those two is smaller (and therefore leads to a bigger deposit).

The reserves must be deposited in cash and will not earn interest, Aldo Mendes, monetary policy director, told reporters in Brasilia today, according to Bloomberg.

Short selling the dollar is a means of seeking to profit from a weakening of the US currency against a strengthening real. (continue reading… )

 

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