Wed Dec 25 15:00:00 UTC 2024: ## Central Bank Sells $16.8 Billion to Counter Rising Dollar
**Brasília, December 22, 2024** – Brazil’s Central Bank (BC) has intervened in the foreign exchange market, selling US$ 16.8 billion in spot market auctions in response to the recent surge in the dollar, which has traded above R$6 in recent weeks. This move, resulting in over R$100 billion in reais, aims to mitigate potential losses or generate profits for the institution, which would then be transferred to the National Treasury after approval by the National Monetary Council (CMN).
BC President Roberto Campos Neto and his team have denied that these sales constitute a response to speculative attacks against the real. Instead, they claim the interventions are aimed at addressing market dysfunctions within the context of a floating exchange rate system. The BC maintains it has no target for the dollar exchange rate, intervening only when adverse conditions threaten the market’s smooth operation. This intervention, therefore, is unrelated to fiscal policy or debt reduction efforts.
While international reserves – currently around US$350 billion – serve as a buffer against external shocks, economists point out they also represent a cost. Investing these reserves primarily in US Treasury bonds yields lower returns than Brazilian government bonds, creating a “carrying cost.” Economist Sérgio Gobetti of IPEA estimates this cost at approximately R$40 billion annually. He argues that the current situation presents an opportunity to profit from selling dollars accumulated at lower exchange rates.
Gobetti highlighted that a significant portion of Brazil’s public debt growth in previous decades is linked to the BC’s purchase of dollars to build reserves. He estimates that accumulating reserves since 2006 cost nearly R$700 billion due to the interest rate differential between Brazil and the US. However, he suggests that selling half of those reserves at the current rate would offset this loss. He advocates for maintaining reserves, but suggests the current level might be excessive.
This intervention contrasts with a 2018 statement by then-Economy Minister Paulo Guedes, who suggested selling US$100 billion if the dollar reached R$4.50-R$5 to accelerate fiscal adjustment. Brazil’s consolidated public debt currently stands at 78.6% of GDP (R$9 trillion), rising to 92% when considering the IMF’s methodology, which includes government bonds held by the BC. While this level is below that of developed nations, it remains a concern for investors, as a higher debt-to-GDP ratio increases the risk of default during crises. The government’s fiscal performance also plays a crucial role in investor confidence.
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