Several economies are struggling with the lockdown which has put trade between numerous partners on hold. Currencies of different countries have dropped in value considerably since the start of the year. One good instance is the Brazilian Real which has seen a constant devaluation since the onset of 2020, with the country’s money falling by 30% of its price. Brazil’s economy minister, Paulo Guedes, criticized the real’s fall to its lowest point on the virus attack and said the currency could decrease to as much as 5 real per dollar if adequate supervision is not taken. Paulo Guesdes said the real is depleting in value primarily due to the financial effect of the virus, instead of a modification in the country’s risk judgment. This fall is the poorest reported around the globe since the year began.
The president of the Central Bank of Brazil, Roberto Campos Neto, in a briefing on Wednesday, 20th May, said the South American nation is set to go into its foreign reserves. Brazil has a large pool of foreign exchange reserves which have deepened since 2011. The vast reservoir comes from the devaluation in the Forex being bigger than the selling costs. This reserve accounts for a chunk of the Brazil’s Gross Domestic Profit (GDP). Although, there was a 23 billion dollar fall in March as the Central Bank sold more dollars at almost the exact foreign exchange amount, the reserves still amounted to about 320 billion US dollars by ending of April.
These values are the lowest recorded for over a decade, but it is large enough for a few reforms. Roberto Campos Neto speaking at an online broadcast hosted by infrastructure and industry umbrella group Abdib in Brasilia voiced out the need to intervene in the currency market. With such a huge plunge in the real, something had to be done fast to arrest the situation. He, however, stated that these interventions will not be guided towards paying down debts or fund infrastructural improvements during this period. Brazil needs to gain better foothold of how the real stands against the dollar or see an increase in the inflation rates.
Brazil’s Central Bank has not required to mediate in the area of the Forex market since the first few months of 2009. Trade mediations by the bank from then on were in the instantaneous purchase-sales market of identical cash where it seems to be frequently involved. The Central Bank of Brazil adjusts the largeness and readiness of nay contract it turns up in the swap markets. This present situation in the currency market has led traders to openly peak of the need for policy-makers to be more alert to Brazilian real’s price, liquidity and volatility at the moment. Though traders believe the response should have come earlier, with politics hindering a rescue plan, the development is what they needed.
Roberto aims at balancing the effects the virus has had in the foreign exchange markets to give the real a chance against other upcoming currencies. Brazil has a few other debts and infrastructure problems, but there will be restricted assistance from the vast resources for these objectives.