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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