56 | BRAZILIAN REAL WORDS | Smart Currency
Brazil, long known for its vibrant culture, is now drawing attention as one of the famous “BRIC” emerging economies. How has the Brazilian Real fared through this massive economical shift? Smart Currency considers its history and looks to the future to see where this astounding country’s currency is going next
in 2014 and then the 2016 Olympics. Not bad for a country viewed not that many years ago as a country famous for the Rio carnival, its beautiful people, its wonderful beaches and its inspirational football team but
Real boom in Brazil B
razil is in for a busy few years as it acts as hosts for the next football World Cup
lacking in the financial resources to fund even one of these major world events let alone two within two years of each other. So what has happened to change Brazil from a beautiful country in South America to a world economic force capable of hosting two world events in such a short period of time?
I think there are two key factors. The fi rst reason was the commodity boom. Brazil has signifi cant mineral resources and as the Chinese economy began to grow rapidly it needed resources from throughout the world. The demand for these resources meant it was still economically viable to transport minerals halfway around
EUR BRL daily exchange rate February 2013
2.74 2.72 2.7
2.68 2.66 2.64 2.62 2.6
2.58 2.56 2.54
2.52 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th February 2013
the world. The second reason was the growing affl uence of the Brazilian middle classes with the increased per capita expenditure supporting growth in locally based businesses independently of the mining industry boom. Brazil also benefi tted from being recognised as a key emerging market celebrated in the BRIC acronym, which covers the four largest emerging market countries of Brazil, Russia, India and China. This brought it to the forefront of international investors’ minds when they were looking to invest their monies in high growth opportunities. This was another boost for the local economy.
So what has happened to the Brazilian Real over the last few years? Looking at the movement of the US dollar, the euro and sterling against the Brazilian Real in the last four years, the symmetry between the
“Brazil once lacked the fi nancial resources to fund one major event, let alone two”
EUR/BRL average monthly exchange rate
2.8 2.7
2.6 2.5 2.4 2.3 2.2 2.1
March 12
April 12
May 12
June 12
July 12
August 12
Sept 12
Oct 12
Nov 12
Dec 12
Jan 12
Feb 12
three charts is on first impressions surprising. As we can see from the charts in the two years from 2009 we saw these three currencies weaken by between 13% to 18% against the Brazilian Real. The problems in that period for the US, the UK and the Eurozone are well documented, as western world financial markets imploded and government debt levels became troublesome, especially for the southern states of the Eurozone. Although these problems did affect economies elsewhere in the world, economies such as Brazil’s did keep growing. Brazil benefitted from a strong local financial system and a strong internal business environment. This meant that it was highly independent of what was happening in the western world. Hence the symmetry in the charts. However, the strength of the Brazilian Real caused two major problems. Firstly the cost of
FX
www.opp-connect.com | APRIL 2013
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