Brazil’s foreign currency reserves close to US$100 billion

22 February 2007

Brasilia, Brazil, 22 Feb – Brazil’s foreign currency reserves are close to a record level of US$100 billion, Brazilian financial newspaper, Gazeta Mercantil reported Wednesday.

The high level of foreign currency reserves, which totaled US$96.7 billion Friday has a high cost, but protects the economy against external crises, the Brazilian authorities have said, with economists estimating that the Treasury had spent between US$7 and US$8 billion on maintaining reserves at that level.

The cost of the reserves is high because the Central Bank finances the acquisition of US dollars by issuing bonds that pay out the basic level of interest, which currently stands at 13 percent, and receives just 5 percent from investing the funds.

“The cost to the Treasury is high but the benefits are important,” said the Brazilian minister for planning, Paulo Bernardo.

The director of Economic Policy for the Central Bank, Afonso Bevilacqua, said that there was still room to increase reserves and cited the example of South Korea, which has reserves of up to 30 percent of the Gross Domestic Product (GDP), which if Brazil were to have the same level would total US$290 billion. (macauhub)