chapter  11
9 Pages

Exchange rate management techniques

WithDaniela Magalhães Prates

The financial crisis, which started in mid-2007 with soaring insolvencies and the devaluation of real estate and assets related to high-risk mortgages in the United States, reached systemic proportions in the third quarter of 2008, following the bankruptcy of many banking and non-banking institutions. In 'dirty float' regimes, besides reducing these countries' vulnerability to financial crises, capital management techniques increase the degree of autonomy for economic policymaking, and are a supporting instrument for the exchange rate and monetary policies in times of both boom and bust of capital flows. However, the capital management techniques and exchange rate management techniques need to be much broader than the current ones and to become a permanent feature of the policy economic regime, even if the policy mix undergoes changes that allow a reduction in the Brazilian interest rate. Thus, a broader approach is needed to reduce the loopholes that financial capital finds to circumvent the regulations.