Brazil has criticized the recent money-pumping measure by the US Federal Reserve. Brazil’s finance minister Guido Mantega called the measure a “protectionist” move that would spark global currency wars.
The Minister believes that the Fed’s third stage of the quantitative easing program aims at weakening the US dollar and boosting US exports, which Brazil doesn’t like at all. The Federal Reserve also monthly purchases US $40 bn of mortgage-linked assets from the market but in reality simply prints non-backed money.
Brazil fears that the policy will boost national currencies in the developing countries, including the country itself.
Roman Andreev, the head of the active transactions department of the Financial Standard Bank, explains the situation:
"Quantitative easing doesn’t affect developed countries exchange rates directly. It creates abundant money that encourages investors to put more money in risky assets, like stocks and securities of developing markets. In developing countries that received the funds, the currencies are boosted which negatively affects their exports."
The EU and Japan have followed the US printing example, thus, according to Roman Andreev, a currency war is already underway. It even led to the emergence of national currencies in separate regions and cities.
Analyst from Kalita Finance group Alexei Vyazovsky comments:
"The war is in full swing which led to general mistrust in non-gold backed currencies, i.e. those backed by governments and taxes. In the UK, the town of Bristol even introduced its own currency."
The Federal Reserve announced that is would purchase US$40bn of mortgage-linked assets until the jobs situation improves. However, it didn’t specify the rate when the measure will be halted. Taking into account that the US has been seeing over 8 percent unemployment rate since the 2008 crisis, the printing machine will unlikely be switched off soon.