Guedes: Brazil could print new currency to weather depression

Economy Minister Paulo Guedes suggested the Central Bank could be given authorization to print more currency to weather the potential economic depression in Brazil resulting from the Covid-19 pandemic.

The measure would be used as a last resort if the current economic recession in the country — with various experts forecasting V, W or K-shaped phases of downturn and recovery — were to spiral into an L-shaped depression with interest rates plummeting to 0, followed by a period of stagnation.

Mr. Guedes, however, insisted that Brazil is still far from this grim scenario. Another possibility would be to allow the Central Bank to buy bonds and overdue debt, akin to measures already implemented by the U.S. Federal Reserve. The minister believes that Congress could quickly pass an amendment to allow the Central Bank the autonomy to both print new currency and acquire bonds and overdue tax liabilities.  

As previously reported by The Brazilian Report, some economists believe that printing more money through quantitative easing could be a solution to increase government spending on public health and keep companies afloat. However, Central Bank Chairman Roberto Campos Neto has already dubbed the strategy too risky, with injecting extra currency into the Brazilian economy creating the risk of hyperinflation.

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