Brazil's central bank head, Henrique Meirelles, confirmed last week that the government is studying changes to its foreign exchange policy in order to curb further strengthening of the Brazilian real.
The real, is currently quoted at R$1.69/dlr, and has gained over 30 percent against the dollar since the start of the year.
According to Meirelles, current Forex regulations were designed at a time when the country needed to attract foreign currency, which is no longer the case.
With foreign reserves of over $200 billion, and strong inflows of foreign investments, attracted by high interest rates, the country no longer needs to attract dollars.
The government already signaled its intention last month with a 2 percent tax on short term foreign investment. However, with real interest rates of 8.5 percent a year, the country remains an attractive haven for foreign investment.
Last month the country registered a record $14.6 billion in net direct foreign investments, with $13.1 billion from the financial sector, including the stock exchange and government notes and bonds, while the remaining $1.5 billion was from foreign trade.
One of the measures being considered is to allow foreigners to buy Brazilian reals outside the country in the form of government notes, with dollars remaining outside the country.
Guarantees and margin calls on future contracts may also be allowed to remain outside the country, while Brazil's Treasury may be allowed to anticipate dollar purchases to pay future debt. Currently this is restricted to 360 days before debt falls due.
The main problem with a strong local currency is that is makes Brazil's exports less competitive on the international market and also makes imports more attractive.
