Brazil sparks wider currency control fears

FT ^ | 11/19/09 | Peter Garnham

[TigerLikesRooster]

Brazil sparks wider currency control fears

By Peter Garnham

Published: November 19 2009 11:37 | Last updated: November 19 2009 11:37

Asian currencies came under pressure on Thursday as a move from Brazil to further curb foreign inflows sparked fears that other countries would follow suit.

Brazil moved overnight to close a loophole that had allowed investors to avoid a 2 per cent tax on foreign investment in equities and bonds announced last month.

The government announced a 1.5 per cent tax on American Depositary Receipts. Guido Mantega, Brazil’s finance minister, said some foreign investors had been buying ADRs to get exposure to the local equity market while avoiding the tax.

With interest rates in major economies at record lows as their economies crawl out of recession, speculative investors have poured funds into faster-growing emerging markets in recent months in search of yield.

Those speculative flows have now reached the point where many emerging market currencies have hit levels that threaten to undermine their export sectors.

[TigerLikesRooster]

Ping!

[dirtboy]

With interest rates in major economies at record lows as their economies crawl out of recession, speculative investors have poured funds into faster-growing emerging markets in recent months in search of yield. Those speculative flows have now reached the point where many emerging market currencies have hit levels that threaten to undermine their export sectors.

The longer central bankers avoid confronting the cheap money imbalances they have created, the harder it's gonna be to extricate the global economy from its current cheap money addiction.

[Ghost of Philip Marlowe]

What a strange coincidence.

Karl Denninger recommends the Fed raising the interest rate to exactly 2%, the same percentage in the loophole that is such a risk.

Why 2%?

This would eliminate the margin in earnings in the dollar carry trade that is putting the US dollar at such risk.

[lack-of-trust]

I understand wanting to protect your market from the ebs and flows of Hot Money (short term speculation that jumps from sector to sector) but for a developing nation, taxing investment is insane.

[Buckeye McFrog]

the next Smoot-Hawley is going to happen in the currency market, it seems