Brazil Loses US$ 28 Billion Trying to Prop Up the Dollar

    Brazil's currency, the real

    Brazil's currency, the real The Brazilian central bank posted a loss of 47.5 billion reais (28.5 billion US dollars) in 2007, triple the amount in the prior year, because of Brazil's efforts to slow the strong real's appreciation against the US dollar.

    The net loss reached 17.2 billion reais in the second half of last year, including a loss of 26.4 billion from transactions in the foreign exchange and swap markets, the bank said in a statement on its Web site.

    For all of 2007, the bank lost 55.6 billion reais in foreign exchange and swap transactions, and 15.6 billion on interest rate payments on debt.

    "Currency swaps and the inclusion in the bank's assets of resources that compose Brazil's international reserves generated a negative result because of the real's appreciation," the central bank said in its earnings statement.

    The real rose 20% against the US dollar last year, its fifth consecutive annual increase. It has gained 27% over the past 12 months.

    Brazil's central bank has bought dollars almost every day in the currency market to slow the real's rally and to boost international reserves. Reserves reached 190.5 billion this month according to central bank data.

    The bank has also been selling reverse currency swaps monthly to give investors a hedge against a weaker dollar. In those contracts, the yield is the difference between the exchange rate variation and the accumulated benchmark interest rate during the contract term.

    Mercopress

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    • Show Comments (15)

    • guy

      Yes, even Buffet has been investing heavily in Brazilian bonds, due to the high interest rates. I’d say most of it is speculation, but due to the current stability of the country, and that in large part it is being done through the bond markets, most of the speculation is prudent. Bond traders tend to be very risk averse.

      On the other hand, a lot of the investment is by multinational corporations taking advantage of the emerging countries growth. This I would consider pruductive long term investment. The current wave of Brazilian mergers with foregin companies helps prop things up too(foregin investment into Brazilian stocks, thus funding Brazilian companies).

      The issue with Colombia violating the soverignty of Ecuador might change all of this, and create unnecessary distabilization in the region, driving foreign money out.Lets hope diplomacy wins, we don’t need another country going around the world bombing whoever they feel like.

    • Daiu

      Turkey , then Brazil
      Brazil has the second highest interest rates worldwide- that is why ‘ investors’ are putting their dollars into Brazil. How much is speculation and and how much is productive investment?

    • guy

      Something else I would like to point out is the the dollar is still the prefered reserve currency.

      Historically, the Brazilian currency has been very volatile and a few decades back during the Brazilian economic crisis, Brazil tried to defend its currency from freefall, but was unable to, which further deteriorated the economic situation.

      As Brazil builds its dollar reserves, which is basically what it is doing, it will be more likely to be able to defend its currency should another economic crisis affects the country.
      Technically speaking, this article is unnecessary alarmism clearly written outside the correct context.

      Central Banks are not traders, like regular banks, which lately are facing the consequences of their bad judgement(sub-prime derivative losses).

      At the below link you may view Central Bank interventions, and the disclosed amounts when reported. Some countries don’t report, which is the case of Japan(used to but not anymore).

      http://www.fxstreet.com/fundamental/analysis-reports/fx-intervention-tracker/2007-09-28.html

    • guy

      Interesting comments by many but it is obvious few know anything about foreign exchange markets.

      Right now Bank of Japan is about to begin interfering in the markets to defend the rising rate of the Yen. New Zealand tried to defend its own currency a few months back when faced with higher interest rates and a fumbling economy being made worst by the increase in value of the NZDollar. European central banks might begin inteefering in the markets to slow the dollar downfall as well.

      Brazil is not alone in this. Central Bank interference in the markets is a common thing. These days, many countries are battling with against the downfall of the dollar. THIS ISN’T DONE FOR A PROFIT!

      It is questionable if the coordenated effort by EU, NZ, Brazil and other Central Banks will reverse the current trend. This however is not the immidiate goal of interference. It is done to SLOW the process of domestic currency appreciation and mitigate the impacts on the respective domestic economy.

      Someone said 28 billion isnt enough to blah blah blah…. Dont be ridiculous, research before inserting your foot in your mouth. These ammounts have a huge impact on the market, noticeable to any trader, and visibly slows the dollar downfall. Had not many countrie’s Central Banks intervened, the eurodollar rate would easily have reached beyond $2. The ECB will start heavily interfering before that happens.

    • João da Silva

      Ch.c
      [quote]Feeding a goat….costs more ! Without the samitation costs…of course !
      But a goat can be exported and bring a few US$ and is thus more valuable than your own poor children ! [/quote]

      That was one hell of a hilarious (but true) statement, you have ever made.I presume you are talking about “Value Added Goat”. But what about “Value added Sheep” that can produce fine wool? 😉

    • João da Silva

      Adrianerik
      Extremely interesting comments and I enjoyed reading them, especially the paragraph:

      [quote]The benefit to Brasil of a weak dollar is the capacity to buy large scale capital goods from America at a bargain. Many politicians are begging the government to ‘go shopping’ and use their money power to build up the country’s infrastructure.
      [/quote]

      Are we not missing a great opportunity?

    • adrianerik

      Why Brasil buys dollars
      Brasil is not ‘investing’ in the dollar. They are trying to protect what is left of Brazilian exports to America. Much of the so-called stability in the Brazilian economy comes from the 30% of the economy the depends upon exports, a good portion of which is to the United States. When the real strengths, this increases the ‘cost’ of Brazil’s exports and decreases their competiveness with other countries.In the last few years the weakening dollar has devastated many of Brazil’s exports and forced many of them out of the industry as American consumers turned to cheaper countries, competing with Brazil. The ‘ghost’ figures in the Brazilian export figures point to the fact that exporters such as soybeans are charging record prices and the United States demand has not dropped in this area, owing to the quality of Brazilian soybean. The other exporting companies have been pressuring the country to help keep the dollar/real exchange at a reasonable. level. Several years ago, the suggested exchange rate was about R2.35/$1. The exchange rate is based upon supply and demand for one currency for another.(much like stocks). As America reduced its interest rate and Brasil’s interest rate and stock market (Bovespa) returns remained high, investors are pouring dollars into Brasil (increasing demand for the real and thereby strengthening the real). The small increases in American tourism also pours dollars into Brasil, weakening the dollar and strengthening the real. In order to (try) to offset this the Brasil government needs to generate a demand for dollars. Brazilian investors are not going to invest in an American economy with returns around 5-6 percent so it is left to the government to artificially create this demand by purchasing dollars, hoping to cool down the strengthing real versus dollar. The macroneconomic environment in the America might be too much for Brazil to handle. The rising oil prices, the housing defaults, the uncertainty of the war, the recession, etc.

      Only American tourists are complaining about a ‘weak’ dollar versus the real. (‘weak’ being an economic term rather a real term). American exporters, whose products become more cheaper to the Brazilian market, are laughing all the way to the bank. American textiles are suffocating Brazilian textiles as Brazilians prefer to buy Levis. Black and Decker tools are cheaper than Brazilian tools in Brazilian stores and American cosmetics are competitive with Brazilian cosmetics. There are scores of other areas where Brazil is vulnerable to American products. (How much does a quality pair of cotton underwear cost in Brazil versus the United States. Or a quality pair of cotton socks.) In Brazil these things are priced out of reach of a majority of Brazilians. Brazil’s recent tactic of making easy credit, giving everyone a credit card, and not decreasing Brazilian prices is only forestalling a possible shipwreck in the Brazilian economy. Recent reports says that because of this easy credit there has been a 15% default rate among Brasil consumers.

      The benefit to Brasil of a weak dollar is the capacity to buy large scale capital goods from America at a bargain. Many politicians are begging the government to ‘go shopping’ and use their money power to build up the country’s infrastructure.

      note: The dollars available in the American economy are all accounted for in a tight circle. Every dollar that exist is the result of some economic activity. It comes from somewhere and goes to somewhere. (salaries, investments, products, etc). The government cannot just print, let’s say, a trillion dollars, and use it, unless that trillion dollars ‘belongs’ to some economic activity that generated it. The dollar, as a reliable indicator of America’s wealth, would crumble in an instant if this were to happen.

    • ch.c.

      “Nobody listens to old folks anymore”
      Losers never listens to winners because they are adamantly sure they are smarter !
      You proved it once more.

      I know, I know, 1 billion US$ is not much any longer. That is why you measure and publish in your local medias everything in US$ to have the appearance of doing well.

      May I remind you that your Bolsa Familia that Lula is so proud of is not more than US$ 5 billion for 45 millions people.
      Or much lower than US$ 0,40 per day….for 3 delicious meals as Lula said so many times !
      Quite a world prime news that in Brazil you can have 3 delicious meals per day….for less than US$ 0,40 !!!!!
      Feeding a goat….costs more ! Without the samitation costs…of course !
      But a goat can be exported and bring a few US$ and is thus more valuable than your own poor children !

      Who bet that a few months after the US$ will reverse……Brazil will again measure everything in BRL. So that you will continue doing well !!!!!!
      Changing your measurements standards just as it pleases your filthy politicians just show how they DONT care about the citizens who elected them.
      And due to your national pride, you will applaude and re-elect the same crooks time and again !

      Stupid question :
      Would have it not been better to build roads, schools that would have increased in value far more than the building of your foreign currency reserves ?????

      Last but not least :
      On the subprimes, CDO, CDS, CDL, MB (just name them all) investments, there are US$ 600 billion losses.
      Thus far around US$ 170 billion have been revealed !
      Where are the other US$ 400 billion losses or so….hiding ?

      No one raised their hand….yet !

      I bet that at least half of the remaining losses to be acknowledged…are in the hands of the emerging countries central banks that accumulated so furiously the US$ !!!!

      Time will come. No one can hide eternally !!!!!
      Thus far it remains states secrets !
      Dont worry….I am not pointing my fingers only to Brazil but to ALL emerging countries and Japan central banks !

      😀 😉 😀 😉 😀 😉 😀 😉 😀 😉

    • jon

      It’s okay everyone because we are told that Brazil is a now a creditor and money is being thrown here and there..what’s a billion!!

    • João da Silva

      Ch.c
      I knew you would come charging like a bull in a China shop 😉

      [quote]Worse yet : Brazil is losing far more than US$ 28 billion.
      “For all of 2007, the bank lost 55.6 billion reais in foreign exchange and swap transactions, and 15.6 billion on interest rate payments on debt.”
      Simple maths tells me that this equal to far more than US$ 28 billion…for only 2007 !!!!!!!! [/quote]

      You may have a point there, old chap 😮

      [quote]No need to bet that had I written something similar……most of the junkies on this site would have disagreed with me…..just as usual !
      [/quote]

      Nobody listens to old folks anymore 🙁

    • ch.c.

      To Joao !!!!!!!!!!!!!!!!!!
      LAUGH….LAUGH….LAUGH !
      No need to bet that had I written something similar……most of the junkies on this site would have disagreed with me…..just as usual !

      Brazil bought the US$ ALL the way down….and sincerely believed they were smart…when reading and listening to Robin the Crook and his 4000 thieves !!!!!!
      LAUGH….LAUGH….LAUGH !

      It would have been like saying those who bought the Brazilian Real 10 years ago….are smart today !
      Not so ! Your currency is trading at around US$ 0,60 when ten years ago is was 1 to 1.
      Still need to go up by over 60 %…from today prices.

      Sorry for you junkies !
      You all better go to basic school learning basic maths again !
      You are just swallowing Lula lies and nothing else.
      And sorry for Jay but Brazil is certainly NOT OUT of the US$.

      Worse yet : Brazil is losing far more than US$ 28 billion.
      “For all of 2007, the bank lost 55.6 billion reais in foreign exchange and swap transactions, and 15.6 billion on interest rate payments on debt.”
      Simple maths tells me that this equal to far more than US$ 28 billion…for only 2007 !!!!!!!!

      And to the bunch of idiots :
      Guess what central bank made a killing ?
      The Swiss National Bank….of course.
      By having around 25-30 % in gold…they made a profit of US$ 8 billion….in 2007 alone…in gold only !
      Sorry for you jumkies !.

    • João da Silva

      [quote]Pigs get slaughtered[/quote]

      Oh God. I hope Ch.c does not read this thread 😉

    • JAY GLENN

      YEA SURE
      Propping up the Dollar? Yea sure, 28 Billion could not prop up one state government in the states. My guess is they were speculating on the dollar and got out late.
      I got out of US Dollars in to Gold Feb 2007.
      BEARS MAKE MONEY
      BULLS MAKE MONEY
      PIGS GET STAUTERED!

    • João da Silva

      Brazil Loses US$ 28 Billion Trying to Prop Up the Dollar
      What are going to do now? Anybody has bright suggestions?

    • doug

      Mr
      don’t even touch the dollar, the more dollars that are bought, the more the US goverment will print, so brazil will never succeed in what they are trying to do.

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