Warning against currency manipulation to give unfair advantage to local industries, Brazil warned that the world is heading towards a full blown trade war.
Brazil is taking steps to devaluate its currency in response to currency manipulation by China, the US and some other countries, said Finance Minister Guido Mantega. He said the Brazil will take up the issue at the World Trade Organisation (WTO) and at the summit meeting of G20 where developed and emerging markets are scheduled to meet.
Talking to the Financial Times in his first interview since Brazil’s new president Dilma Rousseff took office on Jan. 1, Mr. Mantega said: “This is a currency war which is turning into a trade war”.
Accusing the US of currency manipulation, he said Brazil’s trade surplus of about £9.3 billion ($16 billion) has turned into a deficit of $6 billion (£3.48 billion). “The exchange rate is one of the main drivers of economic policy, more so even than productivity, he said.
China’s undervalued currency is also distorting world trade dynamics, he said. Mr. Mantega – who has been the Finance Minister since 2006, had last September accused some rich countries of deliberately undervaluing their currencies to boost export and stay competitive.
The Brazilian currency – The Real has appreciated by a whopping 39% over the US Dollars in the last two years. The Real has been appreciating as Brazilian economy expands and badly damaging its exports.
Brazil is also battling – like other fast expanding emerging markets, a flood of foreign capital as interest rates in developed countries have hit rock bottom and one of the key drivers of domestic currency appreciation.
The issue of currency manipulation was discussed at the G20 meeting in last November while the International Monetary fund (IMF) has already warned that some countries are using their currencies as ‘weapons’ against others.