Monday, 10 January 2011

Brazil's Finance Minister predicts trade war

Brazil's Finance Minister Guido Mantega has said that the country is in the process of putting in place new measures to prevent further appreciation of its currency. He also said that Brazil would bring the issue of exchange rate manipulation to the attention of the World Trade Organisation (WTO) and the G20 group.

“This is a currency war that is turning into a trade war,” said Mantega, naming the worst two culprits as China and the US. The finance minister added that Brazil's trade with the US has dwindled from the annual surplus of approximatelly $15 billion to a deficit of $6 billion, due to ineffective monetary policy on behalf of the US.

"The exchange rate is one of the main drivers of economic policy, more so even than productivity," he said. Mantega also noted that China's "undervalued currency" was distorting world trade and that Brazil would like to “see a revaluation of the renminbi.”

Mantega, finance minister since 2006, has raised concerns about currency manipulation in September, ahead of new controls on foreign portfolio investments in Brazil, aimed at increasing the value of Brazilian real by 39 per cent against the US dollar.

On Thursday 6th January, Brazil's central bank launched a new measure to curb short selling of the dollar against the real by onshore banks. Speaking about the initiative, Montega said Brazil intends to impose “more measures on the future market.”

Sources: FT, BBC News, Reuters

For more news and expert analysis about Brazil, please see Brazil Focus.

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