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Brazil is characterized by a growth oriented, mixed economy that currently ranks 8th in the world when ranked by both gross domestic product and purchasing power. Previously, Brazil grew to become the world’s 6th largest economy, which is a powerful indication of the growth potential in the Brazilian market. Due to recent economic turmoil however, Brazil’s status has returned to its current ranking of 8th. This article will cover the financial system of Brazil, as well as a range of market information covering currency, futures, and stocks.
Brazil’s financial system is governed by The Financial System Law, which was ratified in 1965. Its structure defines the function of the National Monetary Council (also called the CMN) as well as the Central Bank of Brazil (BCB).
The National Monetary Council is a legislative body that creates and regulates policy for currency, credit and the financial institutions which utilize such assets. The nation’s central bank is geared toward the security of Brazil’s economy by primarily ensuring the security of their currency’s purchasing power.
The central bank also functions to execute the policy directives of the CMN as well as the regulation and oversight of the financial institutions which operate within Brazil. Additionally, the central bank oversees the country’s currency circulation in all aspects. While the monetary council gives the central bank its power to regulate and oversee the council’s policies, it also allows the bank to regulate all interbank transfers within the Brazilian financial system. This is quite unusual as financial systems are usually set up to be a system of checks and balances, while the Brazilian system seems to leave much room for corruption.
There is a third regulatory agency set up to help clear and settle payment systems called the Securities and Exchange Commission, however it seems to empower the Central Bank of Brazil even further by allowing the BCB to define what settlement systems are allowable and what sequence their importance is established.
show moreFurthermore, the country’s Bankruptcy Laws indicate that a payment clearing or settlement system should be valued before bankruptcy obligations, which usually have collateral that can be seized so that all parties are paid or repaid to the fullest extent allowable.
While Brazil is regulated and overseen by its central bank, there are some other financial institutions worth noting as they control a large percentage of the nation’s currency flow. These banks, while deemed as private institutions, are also partly owned by the Federal Government. The major players in this category include:
It is important to note that while private Brazilian banks dominate this list, there is a growing international presence in Brazil’s financial sector.
Payment systems in Brazil are not as complex as some other national financial exchanges can be. This section will briefly cover the accepted financial instruments within the country.
The legal tender of Brazil is known as the Brazilian Real (BRL). The Central Bank of Brazil currently regulates approximately 132 billion bank notes with 130 billion in coins circulating in the Brazilian economy. This legal tender/cash is used in everyday purchases as well as smaller value transactions such as exchange of services or debt. Cash transactions make up about ¾ of the financial settlements that individuals make. Banknotes and coins are both issued in six denominations with cash being issued at: 2, 5, 10, 20, 50 and 100 BRL intervals, while coins are issued at: .01, .05, .10, .25, .50 and 1. Both banknotes and coins are legal tender, but coins are only mandatorily accepted up to 100 units of each denomination.
Cheques are the least popular payment instrument in the Brazilian economy today. As with most economies, cheques were once one of the most popular payment instruments but have recently given way to electronic transfers of funds and payment cards. Cheques are currently encoded with a magnetic ink character recognition (MICR) system so that fundamental information can be read with an automated system.
The fastest growing payment method in Brazil is the electronic transfer of credit. Recently, these transactions accounted for some 19 trillion BRL with a projected growth rate of approximately 10% per year. Credit transfers can be made within interbank systems using Electronic Funds Transfers (TED), Credit Transfers (DOC), and Special Credit Transfer (TEC) systems.
Credit cards were issued in Brazil during the 1950’s but have only become important as a financial instrument in the 1990’s. Debit cards were not issued as early but rose to prominence around the same time. Credit card carriers mainly accepted in Brazil are backed by Visa, MasterCard, American Express and Hipercard while the major debit card companies are Visa Electron, MasterCard Maestro and the domestic, Cheque Eletrônico brand. As is typical, credit card holders pay no interest if they pay off their balance in full over a single invoice and are given a grace period of 28 days. There are approximately 155 million credit cards currently circulating in the Brazilian economy, with debit cards numbering slightly higher at around 170 million. The average annual increase in this number has been around 23%.
The B3, formerly the BM&FBOVESPA, is the name of the Brazilian stock exchange headquartered in São Paulo, Brazil. This financial exchange giant was previously evaluated to have a market cap of over $2.3 trillion (USD), however due to economical as well as political turmoil, its value has slidden more than 50% and is currently evaluated at roughly $1 trillion (USD). Still ranked as the 13th largest stock exchange in the world, the Brazilian exchange lists 381 companies on its index.
The Brazilian currency, known as the Real (pronounced ree-all) is the centralized currency of Brazil and its outlying territories. It is considered an exotic currency and is currently the 19th most traded currency in the world. It is symbolized as R$ or BRL for short and can be further subdivided into 100 centavos (cents). This exotic currency has a somewhat erratic path given the country’s economic instability.
Despite recent efforts to stabilize the currency, its value has plunged more than any other mainstream currency with the exception of the Argentinian Peso. The Central Bank of Brazil is doing its best to keep the Real’s value solid, however the bearish trend of the Brazilian economy is dragging the currency’s value down along with it.
While Brazil’s stock exchange is currently a global leader in the financial world, it only allows access to approximately 380 companies. Brazil’s economy is mainly dependent on its services sector followed closely by the industrial sector. Subsequently, Brazil’s largest listed companies by market cap are primarily in the consumer services sector, followed by the finance sector due to its control over the nation’s flow of financial assets. While regarded as growth-oriented, Brazil’s stock market is unstable and only fit for investors with a very high-risk appetite. This instability is mainly due to a lack of proper regulatory oversight by Brazil’s regulatory bodies.
