Brazil declares new ‘currency war’

From FT

Brazil has declared a fresh “currency war” on the US and Europe, extending a tax on foreign borrowings and threatening further capital controls in an effort to protect the country’s struggling manufacturers. 

Guido Mantega, the finance minister who was the first to use the controversial term in 2010, said the government would not “sit by passively” as developed nations continue to pursue expansionary monetary policies at the expense of Brazil.

President Dilma Rousseff later weighed in on the debate, vowing to defend Brazilian industry and stop developed countries’ policies from causing the “cannibalisation” of emerging markets. 

The move comes as Brazil’s central bank also steps up direct intervention in the market, selling dollars and offering derivatives called reverse currency swaps to curb the real’s near 9 per cent surge against the US dollar this year. 

Brazil was one of the first emerging markets to speak out against the loose monetary policy of richer nations in the wake of the financial crisis, which it blamed for directing a flood of hot money to the country and overvaluing the real.