Brazil FinMin Declares 'International Currency War'

♠ Posted by Emmanuel in , at 9/28/2010 12:01:00 AM
I enjoy hyperbole as much as the next guy, but this one's got to be top of the pops for 2010 as far as verbal jabs are concerned. Although Brazilian authorities curiously threatened to use their new sovereign wealth fund to buy dollars sometime ago, they haven't done so (yet). And, while the central bank has waded in to buy dollars on a fairly regular basis these past few weeks, the article excerpted below notes this buying is in anticipation of the imminent floatation of Petrobras stock that's attracting many foreign investors. Still, the relatively higher yield of the real is drawing in the punters and causing headaches for export-minded authorities:
An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness. [Really? That's a surprise.] Mr Mantega’s comments in São Paulo on Monday follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi, in spite of pressure from the US to allow it to rise, while officials from countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies.

“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness,” Mr Mantega said. By publicly asserting the existence of a “currency war”, Mr Mantega has admitted what many policymakers have been saying in private: a rising number of countries see a weaker exchange rate as a way to lift their economies...

The US dollar has fallen by about 25 per cent against the Brazilian real since the beginning of last year, making the real one of the strongest performing currencies in the world, according to Bloomberg. In spite of Mr Mantega’s recent aggressive public statements, however, Brazil has so far held back from taking any action other than intervening in the local currency spot market.

The central bank bought as much as $1bn a day for much of the past two weeks – about 10 times its daily average in recent months – but this was largely to absorb money entering the country to take part in last week’s $67bn share issue by Petrobras, the national oil company. [In other words, that's sterilization to us to mop up excess local liquidity.] “There’s a real gap between the rhetoric and the action,” said Tony Volpon, head of emerging market research for the Americas at Nomura Securities in New York.
Of course, we all must trace where the impetus to intervene stems from for so many. If the US insists on near-zero interest rate policy and refuses to withdraw extraordinarily accommodative measures like trying to refloat the housing market singlehandedly, it certainly cannot fault others on currency manipulation. Before pointing the finger at what everyone else is doing, America should for once look in the mirror and see itself as the rest of us do. Make no mistake: Sammy is the biggest manipulator there is--the rest's efforts pale by comparison.