The foreign exchange market was taken by surprise today when one of the more popular currencies on the rise came under a harsh set of new taxes. AFP reported that Brazil has imposed new taxes on currency derivatives across the board.
The new tax begins at 1 percent of all transactions, but the law allows for it to potentially grow to as much as 25 percent, and covers all forms of forex trading. The Brazilian Real has risen 8 percent against the dollar since the beginning of the year, reaching a high of around R$1.535 to the dollar.
The move came as the dollar continues to slump in the face of worries about the debt ceiling debate in Washington, and hopes to protect the country's manufacturing sector from speculative rises.
Brazil's central bank spent about $36 billion intervening in the markets in an effort to slow the rise of the real in the first six months of the year.
Brazilian officials have criticized the United States for flooding the world with cheapening dollars and China for not floating its currency.
Tony Volpon, head of emerging markets research for the Americas at Nomura, told the Financial Times that the breadth of the tax is likely to lead to some exemptions down the line.
"This is a relatively severe measure because it's so comprehensive," Volpon said. "It affects Brazilian banks, companies, residents, non-residents."
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Gold appreciated an average of 3.4% against most currencies through the first half of 2011. This is the list of the top twenty currencies that have outperformed gold as of the end of the Q2 2011.
| NZD |
New Zealand dollar |
0.4% |
| SEK |
Swedish Krona |
0.5% |
| BRL |
Brazilian Real |
0.5% |
| MAD |
Moroccan Dirham |
0.7% |
| MUR |
Mauritian Rupee |
1.2% |
| ALL |
Albanian Leke |
1.5% |
| PLN |
Polish Zloty |
2.0% |
| NOK |
Norwegian Kroner |
2.1% |
| COP |
Columbian Peso |
2.3% |
| XAF |
CFA BEAC Franc |
2.3% |
| COM |
CFP Franc |
2.3% |
| EUR |
Euro |
2.3% |
| DKK |
Denmark Krone |
2.3% |
| HRK |
Croatian Kuna |
2.4% |
| BGN |
Bulgarian Leva |
2.6% |
| RUB |
Russian Ruble |
3.3% |
| RON |
Romanian New Lei |
3.4% |
| CHF |
Swiss Franc |
4.8% |
| CZK |
Czech Republic Koruna |
5.0% |
| HUF |
Hungarian Forint |
6.8% |
Source: GoldSilver.com
View the full list of international currency codes.
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Brazilian Finance Minister Guido Mantega has attacked China and the United States for manipulating their currencies, at the expense of trading partners.
"Of course, China manipulates it's currency and it (would be) better that the currency could fluctuate," Mantega told reporters after a meeting in Paris, picking up on a charge made by many of Beijing's trade partners.
At the same time, the minister criticised Washington, accusing it of adopting policies which led to a cheap dollar, crimping exports to the US market.
China and the United States are crucial markets for Brazil, especially of its agricultural products, but it has been increasingly unhappy that its own currency the real has soared in value while the yuan and US dollar have weakened to its disadvantage.
"I'm critising all the manipulation of currencies, not only the United States," Mantega said.
"I don't know if in the United States it's exactly a manipulation. It's the quantitative policy that goes to an undervalution of the dollar," he said.
The US Federal Reserve introduced a policy of Quantative Easing, which effectively creates new money, at the height of the global financial crisis in an effort to get the slumping US economy back on track.
While justified as an absolutely crucial stimulus measure, QE in effect creates more dollars, acting to depress the value of the currency.
Washington has long charged Beijing with manipulating the yuan to gain an unfair trade advantage but China has replied in kind, voicing concerns that QE and a weaker dollar could undercut the value of its massive holdings of US government bonds and other dollar assets.
Mantega was asked what his government would do to ensure that the Brazilian real is not permanently overvalued but he declined to go into specifics.
"All the time, we are taking measures to avoid the overvaluation of the real. I can't explain (more)... because it's a surprise," the minister said.
Brazil has tried to slow the real's gains by limiting fund inflows, among other measures, but to little effect as strong economic growth and high interest rates continue to attract overseas money.
The Brazilian real is currently at around 1.56 to the US dollar, the highest level seen since the unit was floated in 1999 as the economy booms on massive demand for the its goods and raw materials at home and abroad.
AFP
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