The currency war’s aftermath…

In September 2010, Guido Mantega, Brazil’s Finance Minister, accused the U.S. of conducting an international “currency war”.

Back then, the Brazilian Real was trading at about 1.71 Real per dollar and the global economy was still attempting to assess the magnitude of the great recession.

The U.S. seems to have been somewhat of a scapegoat as at the time many governments around the globe attempted to depreciate their currency in order to gain competitiveness in international markets.

Brazil’s fight to strength the Real

Brazil’s fight to strength the Real

Nearly three years later, it seems that the apparent Brazilian triumph of the currency war was not long lasting.

Last Friday, as the Brazilian Real depreciated to around 2.44 Reals per dollar, the central bank of Brazil declared it would launch a currency intervention program intended to reduce the volatility of Brazil’s Forex market.

The bank’s statement noted that the program’s objective is to provide currency hedging to economic agents and liquidity to the currency markets.

 

The weakened Real may have indeed helped Brazil’s exports during the last three years as those increased by approximately 10% since September 2010.

However, it seems to come at a price not limited to volatility.

For instance, Brazilian airlines have requested support from the government due to soaring fuel prices.

Examining the currency war’s aftermath, it seems that sometimes monetary violence is not the answer, and lowering physical trade boundaries is the inevitable last resort.

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