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BRASILIA, Dec 1 (Reuters) – Brazil’s Finance Ministry and the Inter-American Development Bank will launch a foreign exchange hedging platform aimed at smoothing the volatility of investments under the country’s green transition plan, the Brazilian government said on Friday. It was announced on .
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In October, it was announced that the Brazilian government is preparing to introduce currency hedging measures to attract more long-term investment from abroad in a bid to reverse the slump in foreign direct investment.
The tool, which will be available from 2024, initially has the potential for currency hedging of $3.4 billion, but that amount could increase in the future, the Treasury said in a statement.
The program includes currency swaps, credit facilities to provide liquidity for foreign currency investments, and hedging mechanisms to protect investors from tail risks associated with potential “extreme declines,” the ministry said.
The Brazilian government considers currency risk to be one of the biggest hurdles facing emerging countries seeking foreign investment.
Finance Minister Fernando Addad said: “This measure aims to minimize the impact of unexpected currency fluctuations caused by extreme economic events, which could have a negative impact on investment decisions in countries like Brazil. There is a possibility that it will be given.”
The government says the hedging instrument will be available for investment in areas such as reforestation, infrastructure to prevent environmental disasters, low-carbon agriculture, green hydrogen and energy transition. (Reporting by Bernardo Karam; Editing by Kylie Madrid)