|No 38 Em Português|
The Brazilian Dollar "Black" Market
The expression “dollar black market” has almost vanished from the Brazilian newspapers. On one hand, the expression became politically incorrect by associating the black color with an illicit practice; on the other hand, the so-called free or parallel exchange rate became a legal or almost legal activity. However, this month I heard a TV news reporter talk with charm using the English word “black” for the parallel exchange rates.
Brazilian periodicals, even when this was a less legal practice, always openly published the “parallel” exchange rates, even during times of larger repression on this market. Even today it is an interesting economic indicator.
Based on a long monthly series from Gazeta Mercantil, available at the IPEA site (http://ipeadata.gov.br/), it is possible to retrace the path of this exchange rate relative to our currency of the respective year or to its nominal equivalent to the Real. Using IGP-DI indexes from the Fundação Getúlio Vargas and the CPI from the United States, respectively, for deflating the Real and the American dollar, it is possible to evaluate the behavior of this exchange rate in the currency of January 2003. The result is shown in Figure 1 together with the commercial dollar exchange rate. Both rates are relative to sales at the end of the month. The monthly American CPI values from 1948 to 1956 were interpolated using the annual values.
Figure 1: Commercial and parallel exchange rates at the end of the month corrected by the IGP-DI from FGV and by the American CPI.
While the commercial dollar rarely exceeded the inferior limit of 2 and the superior value of 4 R(2003)$/US$(2003), the parallel dollar exceeded 7 R$/US$. The smallest values of the parallel dollar (smaller than 2 R$/US$) were verified in the period that we might call “Real fantasy”.
It is interesting to observe that the parallel exchange rate has often antecipated that of the commercial dollar. The parallel market has also served as a safety valve of the pressures on the commercial one. The Central Bank records exchange rates from 1993 to 1999 of the “tourism dollar” that turned official one share of the market. Presently, the Central Bank publishes the exchange rate of a “cable dollar” that plays the same role.
The monthly variations of the corrected value of the American currency are a good indicator of the economic difficulties. Since the American and Brazilian inflations have been subtracted, these oscillations correspond to sudden real variations that feed the speculators and hinder the productive sector.
Figure 2: Monthly variation of the exchange rate (values corrected to January 2003) at the end of the months.
The two figures have some similarities and some differences. “Calm” periods in the parallel market correspond to the same behavior in the commercial official market. The inverse is not always true.
From 1948 to 1953 there has been a clear administration of the official exchange rate as can be seen in Figure 1. This would correspond to an under-evaluated dollar, Meanwhile, the “black” exchange rate normally oscillated around average values (2,44 R$/US$), close to what was reached by the commercial one in the studied period (2,66 R$/US$).
The Jânio-Jango period (1961/1964) and the beginning of the military regime have resulted in agitations in the official and parallel exchange rates, corresponding to the political turmoil from 1962 to 1966. The behavior of the commercial exchange rate in the Medici, Costa e Silva and Geisel Administrations show a firm management of the exchange rate even with the oscillations due to the first petroleum prices crisis.
The Figueiredo and Sarney transition Administrations (until mid-1989) also show a continuous administration of the commercial dollar notwithstanding the large variations of corrected values necessary to face the petroleum crisis (the second one in 1979), the interest rate crisis (1982) and the moratorium (1987). At that time, much of the monetary uneasiness was absorbed by the variations of the parallel exchange rate.
At the end of the Sarney Administration, in the Collor and the Itamar (before the Real ) Administrations there occurred oscillations of large amplitude both in the commercial and parallel exchange rates, with monthly oscillations up to 100%, that is, there occurred increases in constant currency in the two months close to that of the official dollar.
The post-Real administrated exchange rate brought a considerable stability of the official exchange rate, even though with unrealistically low exchange rates of the dollar. Liberating the exchange rate, which required as compensation highly positive interest rates, attained this stability. With these interest rates and a favorable external conjuncture there was an influx of risk capital that neutralized the exchange rate oscillations. The “Economical Miracle” period of the military regime was also one of relative stability. The fundamental difference between the miracle period and the others is that in the periods of low exchange rate of the dollar, assets (post-war) were liquidated or new debts were made (external and internal in the Real) that brought difficulties in the periods that followed. In the period of the economical miracle, the accumulated debt (much lower relative to the GDP than that left by the Fernando Henrique Cardoso Administration) was compensated by a high rate of real investments that generated the so-called “visible debt” that corresponded to capital goods like factories, bridges and roads.
In the post-Real period, except for short intervals, the parallel and commercial exchange rates followed the same path. In the present policy – decentralized exchange rate – this is possible only through selling and buying interventions of the Central Bank or through submission to the caprices of the market. At the beginning, the Central Bank used the leftovers in order to accumulate reserves that cost us a fortune. When the flux inverted its direction, they were fastly reduced. With this policy, the tensions did not accumulate in the parallel exchange rate but they have altered the reserves level. Sooner or later, it was necessary to submit to the pressures of the market. Another interesting evidence that rises by comparing the curves in Figure 2 is that the parallel exchange rate values oscillate around zero. In what concerns the commercial exchange rates, they clearly show a concern for preventing the increase of the American currency, normally to prevent the inflation increase. In many cases, the “black” variation anticipated these tensions. In Figure 3 the time interval chosen was between 1962 and 1967 when this behavior is clearly demonstrated.
Figure 3: Commercial exchange rate and its monthly variation.
Normally, this concern regarding the commercial exchange rate results in curves similar to the “saw tooth” type where the negative accumulations resulting from not transferring the inflation provoke sudden variations in the correction form made through a governmental decision. The exchange rate curve in constant currency and the monthly variation illustrate very well this type of behavior.
In Figure 4 it is shown the behavior of the parallel exchange rate/commercial exchange rate ratio. In several occasions, changes in the exchange rate policy tried to unify the two exchange rates. The first one shown is in February 1953 and it was reasonably supported until the end of the Jânio Administration in November 1961, a quick end of the Jânio Quadros Administration. Incidentally, the only period when the Gazeta Mercantil does not record the parallel exchange rate was from March to October 1961 that coincides with the meteorically passage of Jânio in the Presidency.
Figure 4: Parallel dollar/commercial dollar exchange rates ratio that illustrates its policy alternation in Brazil.
One can certainly take advantage of this parameter and of the dollar exchange rate in constant currencies in order to sketch the Brazilian historical profile in the last half century.
 It is the weighted average of three other indexes that measures prices that directly affect the economical activity of the country, except exports.
 Price index for consumers.
 From now on, except when explicitly mentioned, we are referring to exchange rate in currency of January 2003
 For obvious reasons the reductions did not reach or exceeded 100%.
 It is interesting to note that the large calm periods observed in the commercial dollar exchange rate occurred in the periods of under-valuation of the dollar (over-valuation of the national currency). The influx of resources as payment for credits accumulated during the Second World War, in the first case, and the influx of speculative resources post-Real have sustained this stability.
 The present one is invisible.
Graphic Edition/Edição Gráfica:
Tuesday, 10 May 2011.