by By Nathalie Marins, Ricardo Summa & Daniel Consul (Guest bloggers)Currency devaluations can disrupt developing economies by raising import costs and food prices, which in turn reduces real wages. This impact is particularly detrimental to lower-income households, which typically allocate a substantial portion of their income to essential goods. Consequently, when the local currency weakens, governments encounter increased political pressure due to rising prices that erode purchasing power. Throughout 2024, the Brazilian real faced a continuous process of depreciation that intensified in December, prompting headlines accusing recent fiscal policy decisions of triggering a full-blown currency crisis. However, a closer look at the data suggests that external financial factors, monetary and
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Matias Vernengo considers the following as important: Brazil, Exchange Rate
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By Nathalie Marins, Ricardo Summa & Daniel Consul (Guest bloggers)
Currency devaluations can disrupt developing economies by raising import costs and food prices, which in turn reduces real wages. This impact is particularly detrimental to lower-income households, which typically allocate a substantial portion of their income to essential goods. Consequently, when the local currency weakens, governments encounter increased political pressure due to rising prices that erode purchasing power. Throughout 2024, the Brazilian real faced a continuous process of depreciation that intensified in December, prompting headlines accusing recent fiscal policy decisions of triggering a full-blown currency crisis. However, a closer look at the data suggests that external financial factors, monetary and exchange rate policy choices, and a short-term “flight to quality” played a far more significant role in driving this depreciation. In the following pages, we will examine the behavior of Brazil's currency in 2024 and explore the factors behind this trend.
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