Brazil: Macroeconomic Profile

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Exchange Rates

Brazil follows a semi-convertible exchange regime. The financial institutions which have been licensed to deal in foreign exchange in Brazil operate according to a quota system and register all transactions with the Brazilian Central Bank, which monitors all dealings. The Central Bank itself operates on the exchange market with a view to discouraging short-term speculation and containing fluctuations within bands deemed acceptable by the bank. Brazil has two types of official exchange: commercial exchange, which is reserved for operations in foreign trade, and floating exchange, which applies to all other international financial operations.

Exchange rates are set by the Brazilian government, whose aim is to maintain balance in trade and to control inflation. For these purposes, it has adopted a policy of maintaining stable nominal exchange rates. The thinking behind this policy is to maintain a balance between the parity of the Real in comparison with a basket of foreign currencies and incorporate, at the same time, the relative gains from the country's productivity. The maintenance of a stable exchange rate is regarded as vital in the battle to give credibility to the policy to control inflation.

One aspect which can be regarded as propitious for the sustainability of this active exchange policy is the volume of international reserves available to the Government; in December, 1995, they reached US$50.5 billion in cash and US$51.8 billion in international net assets, sufficient to cover about 13 months of imports. In 1970, the reserves were just US$1.2 billion. The table below shows the trends in Brazilian international reserves: