Watch out for reductions in the foreign reserves by the Government

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While it is true that the Brazilian Government has only a very small amount of debt issues in dollars, states, cities and companies have a lot of dollar denominated debt. The dollar reserves, even unused, have more of a psychological effect, a certain assurance that the country in general would find dollars if it needed to.

Venda de reservas está no cardápio para redução da dívida, mas decisão é do BC, diz Waldery

Reducing the reserves is bad news, unnecessary, and quite frankly, very dumb. It shows the Central Bank does not understand how their own money works, and that the government can issue any amount of money it needs to pay its Real denominated debt. To ignore that is downright stupid, and very, very worrying. Just the fact that this is being considered should ring alarm bells on everyone’s heads!