FX currency Wars - Brazil

As discussed in Commodity producing countries under pressure (political/economic), most exports nations are now amidst a global FX war, sparked by the Japan's Bank of Japan/Ministry of Finance intervention into the FX markets on September 14th 2010, although somwhat a failure, Japanese FX intervention will continue. Commodity producing countries from South Africa to the export tech orientated countries of South Korea and Taiwan have now all begun a currency devaluation. Brazil made the verbal call that a 'FX War' had broken out, yet when a country embarks on currency devaluation it shifts it's growth (lack of) issues or problems onto other countries, a dangerous form of protectionism as all countries start to devalue currency to stay competitive.

At this point intervention rhetoric by Guido Mantega of the Brazil's Finance minister won't be enough with the REAL now at close to post Lehman 'crash' highs refer to chart now @ 1.6961 (close 30 Sept 2010) from the open of 1.6682 (9th Nov 2009)



If the US dollar weakens and falls through further supports and goes into a devaluation cycle, 'hot flows' of money will pour into other countries namley the export giants like Brazil, that are desperately trying to curb inflation and assets bubbles. A devaluation of money is a 'cheap' way of shifting that flow of hot money from (USD weakness) away from a country with a higher yield, or safe haven . Rather than pass on interest rates to the consumer (to tackle asset bubbles from inflows of money, speculation etc), central banks, like Brazil will simply devalue its currency and pass on the problem to other country. If governments do not want civil strive (but unfortunately an inevitable aspect of our human psyche) in their own countries as exports become more expensive then (a short term solution) a devaluation cycle occurs, i.e foreign exchange war.