Cristiane Lucchesi, Ye Xie, Josue Leonel – Bloomberg, 10/24/2014
Fourteen months after Brazil began selling billions of dollars-worth of derivative contracts to shore up its currency, the strategy is proving ineffective and raising concern in financial markets.
The real fell to a six-year low yesterday and is the world’s most volatile currency. Some analysts say the swaps, which are equivalent to selling dollars in the futures market and now amount to 27 percent of foreign reserves, are approaching critical levels. The opposition’s presidential candidate has indicated he’d discontinue their use.
“The swaps program has reached its limit and it needs urgent review since it is losing efficiency and credibility,” said Tony Volpon, the managing director and head of emerging markets research at Nomura Holdings Inc., Japan’s largest brokerage.