Economy & Energy
No 36:  Decemberr 2002  January 2003 ISSN 1518-2932

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e&e No 37

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Commercial Dollar Exchange Rate

Energy Emissions:

1 The benemis_e Program

2. Results

Annex1. Using the Program

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Commercial Dollar Exchange Rate

 Carlos Feu Alvim(*)


The exchange rates of commercial dollars in Brazil in the last months have frightened the analysts .We try to represent the historical exchange rate from 1948 on, in January 2003 prices. From the resulting graphic it is concluded that the exchange rate of four reais per dollar has only occurred in four occasions. The good news is that previous peaks of this exchange rate have had a short duration, the bad news is that they have corresponded to deep crisis in the Brazilian economy.

It is usual to say that Brazil has a short memory. In questions involving prices, Brazil has complete amnesia. This amnesia is justified in part due to the inflation disease but there is a profound disinterest in using historical price parameters in order to forecast the future.

The IPEADATA is carrying out an excellent job regarding collection and dissemination of historical data ( Therefore, we run the serious “risk” of regaining our memory.[1]

We have tried to retrieve the average exchange rate of the commercial dollar in the January 2003 currency with the help of the available data series. For this purpose, we have used the IGP-DI (General Price Index) monthly data from the Fundação Getúlio Vargas (FGV) in order to correct the Reais and the currencies that preceded it, and the Consumer Prices of the United States, both available at IPEADATA. The monthly commercial dollar exchange rates are also available at that site. When one corrects the exchange rates with the price indexes one obtains the following graphic.


The average historical exchange rate is 2.61 R$/US$. As has been demonstrated by Aumara Feu in the 36th issue of e&e [2], the average exchange rate coincides with the years when the commercial balance of goods and services was in equilibrium.

Exchange rates above 4.00 R$/US$, as that of October 2002, has occurred only four times in 50 years. The first one was in September 1958 when President Juscelino Kubitcheck broke with the International Monetary Fund, the second one before moratorium was declared in 1986, the third one before the deposits and investment confiscation of the Collor Plan. The fourth time was at the end of Fernando Henrique Cardoso Administration.

On the other hand, the dollar exchange rate in present currency was only a few times below the 2.00R$/US$ rate. Only twice was it below this value for a period of a few years. The first one was at the beginning of the period represented in the graphic, while the War credits were being consumed and the second one in the first Fernando Henrique Cardoso Administration when it was adopted an exchange rate of 1.86 R$/US$ in present currency. As it has been demonstrated, it was an artificial exchange rate that originated the present difficult situation.

In the period from 1983 to 1985 that approximately coincides with the second term of Minister Delfin Neto as Minister of Finance, the exchange rate was maintained around 3.75 R$/USS$, what made possible the generation of surpluses in the commercial balance of up to 5% of the GDP.

Coherently with what was observed in other occasions, the commercial balance has increased. The question that the graphic cannot answer is the following: are we at the descending part of the October peak and things will be resolved by this reaction of the market or once again something more drastic will be necessary?

Carlos Feu Alvim and Aumara Feu in 02/26/2003

Carlos Feu Alvim is a PhD in Physics and editor of the Economy and Energy periodic, Aumara Feu is finishing her PhD Economy thesis at the Brasília University.

[1] Nevertheless, Brazil has a rather reasonable statistical system and a good transparency regarding its national accounts. The little interest relative to historical data – or the illusion that there would be little demand for them – resulted in not being easy to gather them.



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Tuesday, 10 May 2011

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If Brazil would continue to pay 15% p.a. of real interest, Athina Onassis, who received 100 million dollars when she completed 18 years, would transform this money into 500 million dollars when she is thirty. That is, applying 10% of her fortune (estimated to be 1 billion dollars) she would have one and a half times her present fortune. This illustrates the huge amount of interests internally paid by Brazil in the last 12 years.