The Real is linked to the dollar. Historically, the Real was overvalued; foreign capital was used to defend the exchange rate in attempt to stabilize them; interest rates were at 20-30% as credit was squeezed; some banks were closed; government spending was cut; and Brazil moved into a recession. In 2000, Brazil announced that it would float is the Real currency. The Brazilian government stopped spending foreign exchange reserves to support an overvalued currency. The Brazilian central bank chief Meirelles indicated no target for the exchange rate. The Brazilian currency started to devaluate, as investors begin withdrawing funds and dollar outflows increased. The result was by 2003, the one dollar could buy 4 real. 2008, the dollar buys 2 reals. The combination of strong real and low inflation suggests a stable Brazilian economy. Brazil real is strength comes from a trade surplus, boom in the commodities market, discovery of Brazilian oil, the popularity of ethanol, and investor optimism towards Brazil. [Learn More ...]

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