Friday, February 18, 2011

G20 Currency Wars are Back: Brazil to Veto Proposed Changes That Favor Europe and U.S.

Brazil will not accept  the establishment of global guidelines to control the flow of capital at the meeting of ministers of economy and central bankers from the G-20 (the 20 most influential countries in the world), which begins today in Paris.

Brazil also will accept no limits to the accumulation of international reserves.

The two issues are seen by the Brazilian negotiators as the greatest potential for friction between developed and developing countries. If the Brazilian veto the proposals continues, the two issues will not be part of the summit of the G-20, in November in Cannes.

The Brazilian position wasconfirmed by sources involved in the negotiations. With regard to capital flows, the country will only accept the creation of a 'manual' that includes examples of national policies. In the case of Brazil, Tax on Financial Operations (IOF), raised from 2% to 4% in November 2010, would be included. This tax focuses on foreign investments in fixed income and equity.
In its proposals for the G-20, France defedns the "better regulation of capital flows"- in practice, an elimination of the implemented actions.

On Monday, the French Economy Minister Christine Lagarde suggested that measures to control the flow of capital used in Asia, are protectionist. "Countries like Brazil and South Korea have deployed barriers or obligations to limit international capital flows. One must question the nature of those obligations."

France is of course happy to have the Euro devalued, and so is the U.S. as the U.S dollar sinks.

These measures cannot be accepted by emerging nations.

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