Brazilian Government intervenes to protect Real from overvaluation
by
Adil Siddiqui
Brazilian government has added two measures to try to protect the Real from overvaluation.
They have amended a 1980 law that grants authority to the Monetary Council (CMN) to impose and control financial transaction taxes, or IOF taxes, on dollar derivatives contracts – dollar forwards and futures contracts. The dollar futures market is the biggest futures market in Brazil. Under the new rule, CMN can charge as much as 25% in the IOF tax — the limit specified under existing national laws.
In addition, they have made amendments to constitutional laws which allow the government to charge a 1% tax on all Forex derivatives transactions that are increasing their short dollar position greater than $10 million.
The Brazilian Real BRL is a freely floating currency though the central bank conducts regular interventions to smooth volatility.
BRL is fully deliverable onshore, but trades on a non-deliverable basis offshore; most Liquidity is traded through the first futures onshore contract.
The onshore market is liquid, with daily spot turnover of USD10.5bn, including commercial, financial, and interbank trades. Moreover most spot volume is traded via the first futures contract on the Brazilian Mercantile and Futures Exchange (BM&F) which sees an average $20-25bn turnover per day.
An overvalued currency harms exports, subsidizes imports, exacerbates balance of payment problems, negatively effects tourism and foreign residents with dollar incomes, deters foreign investment, inflates real estate prices, and invites currency speculation.
Brazilian government has added two measures to try to protect the Real from overvaluation.
They have amended a 1980 law that grants authority to the Monetary Council (CMN) to impose and control financial transaction taxes, or IOF taxes, on dollar derivatives contracts – dollar forwards and futures contracts. The dollar futures market is the biggest futures market in Brazil. Under the new rule, CMN can charge as much as 25% in the IOF tax — the limit specified under existing national laws.
In addition, they have made amendments to constitutional laws which allow the government to charge a 1% tax on all Forex derivatives transactions that are increasing their short dollar position greater than $10 million.
The Brazilian Real BRL is a freely floating currency though the central bank conducts regular interventions to smooth volatility.
BRL is fully deliverable onshore, but trades on a non-deliverable basis offshore; most Liquidity is traded through the first futures onshore contract.
The onshore market is liquid, with daily spot turnover of USD10.5bn, including commercial, financial, and interbank trades. Moreover most spot volume is traded via the first futures contract on the Brazilian Mercantile and Futures Exchange (BM&F) which sees an average $20-25bn turnover per day.
An overvalued currency harms exports, subsidizes imports, exacerbates balance of payment problems, negatively effects tourism and foreign residents with dollar incomes, deters foreign investment, inflates real estate prices, and invites currency speculation.
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Network, Learn, Grow | FMAS:24
Network, Learn, Grow | FMAS:24
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Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
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Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
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Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
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Looking to expand your network in #Africa?
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Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
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Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
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Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
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