Real could sink once and for all if Bacen doesn't act, says economist

Charlie Taylor

If you are Brazilian, you probably lost 40% of your purchasing power in dollars if your assets are in reais (CDI, bonds and even savings) in the last 12 months. The bad news is that this depreciation may continue. But you may ask yourself, what the hell does the dollar have to do with my life? Absolutely everything, from your food to the price of gasoline is influenced by the dollar. We explained in more depth the importance of the dollar in the text: "I, you and we all eat dollars yes". The real was one of the currencies that depreciated the most against the dollar in 2020, just behind the currencies of Argentina, Libya, Zambia and Iran. Unfortunately, this devaluation was thought of and is maintained by the current government with an artificially low interest policy – encouraging the outflow of capital from the country. And if you have less dollars here, the dollar will appreciate. You don't need to be a Chicago economist to understand this. What is the advantage of keeping the interest rate low? The government can roll over public debt more smoothly, spend more and encourage investment in assets other than government bonds. And that alone would be great.

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But with the messes at Petrobras, privatizations that never arrive, slowness in the distribution of vaccines, it was not surprising that investors are losing hope in Brazil and this directly impacts the exchange rate.

Central Bank intervened and did not tickle

According to economist Fernando Ulrich, the exchange rate is about to sink once and for all. “DOLLAR R $ 5.69 Bacen intervened with US $ 1.0 billion on the spot and did not tickle. It did not exist. Either Bacen takes over or the exchange rate sinks once and for all. It's time to hit that interest rate. For yesterday. 25bps at the next Copom would be nothing. 50bps, meh. But 100bps would send the message. ” – said Fernando Ulrich.What does this mean for bitcoin? On the one hand, if the dollar continues to increase the price of btc it tends to follow in real. Now, if the Copom comes into play, the dollar may fall and more investors will be encouraged to invest in government bonds, leaving out riskier assets. Now it is worth remembering Paulo Guedes' speech about the dollar:

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