One of the biggest boasts of Brazil’s Central Bank in recent years is its vast international reserves. That’s why it came as a surprise when economist Roberto Campos Neto, head of the Central Bank, announced the sale of U.S. Dollars on the spot currency market for the first time since the 2009 crisis. The move comes as an attempt to avoid major losses for Brazil’s currency, but there is some doubt over whether this indicates a change in the way the country will deal with its international reserves, or if it is just a way to calm markets down.
On Wednesday, August 14, the Central Bank said it would hold multiple USD-550 million auctions on the spot market between August 21 and 29, considering “the increase in demand for liquidity on the spot currency market.” In order to protect the USD 388 billion Brazil has put away for emergencies, the Central Bank also announced the spot sale would be coupled with traditional and reverse currency swap auctions.
The announcement came amid a global financial slump, as investors seek protection against the effects of the U.S.-China trade war, coupled with spill-over effects from the massive crisis in Argentina. But going against a global move is atypical behavior for the Central Bank, which led investors to wonder what might have changed this time.
“It seems the Central Bank may...
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