Currency Wars

Currency Wars: "

Brazil’s Finance Minister Guido
Mantega’s claim that the globe was in the grips of an all-out currency war is a
reflection of the pain being endured by many emerging market countries as they
suffer the results of the monetary and foreign exchange policies that are being
pursued by China, Europe and the U.S. The most affected countries are Brazil
and South Africa, with the former witnessing a 37% appreciation of its currency
since the end of 2008. Attempts to cool down the appreciation of the Real,
through central bank intervention, led to a sharp accumulation of international
reserves—recently cresting over the $275 billion mark. This is the reason why
Brasilia is threatening to impose a new tax on short-term fixed income
investments. Of course, it is unfair for Brazil to lay all of the blame
elsewhere. The country’s massive investment programs, such as Petrobras’ recent
$70 billion share offering and Sinopec’s decision to pay $7.1 billion for a 40%
stake in Repsol’s offshore operations are the main factors pushing the currency
higher. Moreover, the Brazilian real is not the only emerging market currency
that is appreciating. The reallocation of global portfolios into the BRICs is
pushing almost all of the major emerging market currencies higher. The Russian
ruble, Indonesian rupiah and Peruvian sol are just some of the currencies that
are soaring.

"