Brazil pledges to stop US 'melting the dollar'
Telegraph (UK) ^ | 5:27PM GMT 05 Jan 2011 | By Robin Yapp
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Brazil has sounded a new note of warning in the international "currency war" by pledging not to allow the United States to "melt the dollar".
Guido Mantega, Brazil's finance minister, raised the prospect of introducing greater controls on short-term flows of speculative capital into his country.
There is widespread concern about the effects of a weaker dollar on the competitiveness of emerging markets, many of which have seen foreign investment send their currencies soaring.
"We're not going to allow our American friends to melt the dollar," said Mr Mantega, who views the US government's move to pump $600bn into its economy as an unfair attempt to help exports
"There are infinite measures that we can take. One of them is to manage the entry of speculative capital in the short-term."
His comments came after Chile's central bank announced a plan to buy $12bn of US dollars on international markets on Monday in an attempt to stem its own currency appreciation.
The Chilean peso has gained by more than 17pc cent against the US dollar since June, fuelled by increases in the price of copper, which is Chile's biggest export.
It was Mr Mantega who coined the term "currency war" last year as he voiced concerns that Brazilian exports were being damaged. In October he tripled the tax on foreign investments in some bonds to six per cent, a measure he said had since been "effective".
Brazil plans to make "considerable" cuts in government spending which would help weaken the real and allow interest rates to be cut at some point from the current level of 10.75pc.
The "currency war" has been of particular concern to Brazilian manufacturing companies which have suffered due to booming demand for cheap imports from China, which has been accused of keeping its currency artificially weak.
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