Brazil tightens noose on currency warriors

The Central Bank of Brazil has introduced new reserve requirements for those financial institutions that have dollar short positions to help prevent a bubble in Brazil’s domestic currency.

The speculators will have to keep a deposit with the central bank, equal to 60% of the difference between the size of short position and $3 billion (£1.9 billion) or the institution’s tier one capital, whichever one is smaller.

Brazilian financial institutions have 90 days to comply with the new regulation. Once the requirements are compulsory, it will be more expensive for them to bet against the dollar. The move is intended to stabilise the dollar’s exchange rate against the real. (article continues below)

Guido Mantega, the Brazilian finance minister, has repeatedly warned of an international currency war after America embarked on a currency policy which has helped weaken the dollar against emerging market and Asian currencies.