Saturday, Sep 25, 2021
International Finance
Forex

Brazil to make currency real fully convertible in two to three years

Brazil needs full currency convertibility to reduce cost of cross border trade and investments

Brazil plans to make its currency the real fully convertible in two to three years, the head of Brazil’s Central Bank said. The Latin American giant is trying to make the real fully convertible to reduce the cost of cross-border trade and investment.

The move to make the Brazilian currency full convertible goes with the broader business-friendly reforms promised by Conservative President Jair Bolsonaro after his election last year. The Central Bank President Roberto Campos Neto also announced a slew of proposals to simplify regulations and to make the financial markets more flexible and accessible

According to the President of the Central Bank, Brazil will boost credit for small and medium enterprises and farmers, increase financial transparency, enhance digital financial supervision, improve interactions with foreign investors, and conduct educational activities for Brazilians.

“A convertible currency opens up the potential for much greater (economic and financial) stability. There’s great demand from neighboring countries for accounts in reais here. Brazil is a huge part of GDP in the region,” Reuters reported Campos Neto as saying.

Campos Neto agreed with the government’s position that the financial barriers, bureaucracy, and business costs in Brazil were too high. Brazil must reduce these to become competitive in a world of global supply chains, he added.

The Brazil central bank head also said that Brazil will examine ways to improve the management of its $385 million foreign exchange reserves as part of a micro agenda as opposed to a macro agenda.

Campos Neto also said that Brazil’s banking spreads — the difference between the rate at which banks borrow and lend — is on average four times higher than in emerging market economies with comparable inflation, interest rate, and default rate dynamics.

The real is Brazil’s legal tender since 1994 and is considered the strongest currency in the whole of Latin America. Campos Neto announced that the Brazilian monetary authority will suggest changes to the exchange rate legislation in the near future.

 

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