How the New Foreign Exchange Law Impacts the Market and International Trade

Welber Barral, Foreign Trade Strategist at Banco Ourinvest, says that the “new foreign exchange law is here to update and modernize this market.”

More significant insertion of Brazilian companies of all sizes in the international market, simplification of operations in foreign trade, legal certainty, the flexibility of exchange contracts, and more significant gains for Brazilian exporters are some of the benefits when the new exchange law comes into effect, as reported by the portal

The President of the Central Bank of Brazil (BC), Roberto Campos Neto, said in an interview with Folha UOL: The current exchange rate legislation is very complex and makes foreign trade, export, and import activities difficult and affects people’s lives.” Therefore, the law passed by Congress on December 30, 2021, which parliamentarians expect that it can come into force later this year,  provides the following benefits:

More export credit options 

Brazilian banks and financial institutions may carry out loan and financing operations abroad with funds raised in Brazil or abroad. A foreign company that imports goods produced in Brazil may be financed directly abroad by a Brazilian banking institution.

Benefit Importers and exporters

The project eliminates restrictions where exporters can freely use their resources, having more financing mechanisms available to buyers of their products. 

Increase the competitiveness of Brazilian companies

A Brazilian exporter who receives and maintains its export earnings in an account abroad will now be able to lend them to its subsidiary to operate outside the country.

International use of the Brazilian real

The aim is to encourage the Brazilian real, the official currency of Brazil, in international financial operations. There will be authorized entry and remittance of payment orders in reais. It will promote agility in the flow of payments and decrease exposure to exchange rate variations. 

Free movement of capital

Foreign banks that have Brazilian accounts in reais can settle payment orders in reais with other  financial institutions domiciled or headquartered in other countries. Today, the institution can only use their account to make payments in Brazil.

Decreasing of bureaucratic operations in the foreign exchange market

Simplify the Brazilian foreign exchange market, eliminating the limitation of the value per operation. 

Opening accounts in foreign currency in Brazil

People and companies will pay bills in Brazil with foreign currency. This possibility will reduce exchange risk, reduce company costs and increase business efficiency. For example, in foreign trade contracts, “leasing” is when the party involved is from another country.

Previously,  authorized agents could operate in foreign exchange, such as accounts at embassies, consulates, issuers of international credit cards,  currency exchanges, and travel agencies.

Import financing 

Imports can be paid in full even without entering products or inputs into the country. Today, there are restrictions on installments and interest on long-term credit if the goods do not arrive in the country.

Brazilian banks will be able to finance the purchase of Brazilian exports abroad.

It will increase the competitiveness of Brazilian products in the international market. Banks will be able to receive funds in reais from abroad. Thus, a greater number of agreements will be made in Brazilian currency.

Attracting foreign capital

The bureaucracy of foreign investors on the Stock Exchange or in the purchase and sale of Brazilian public securities will be reduced. It will no longer be necessary to register capital with the Central Bank (BC). Small and medium foreign investors can, for example, invest in Treasury Direct (online sale of federal government bonds to individuals) with investments starting at 30 reais.

Transfers and payments abroad

Companies that remit money to other countries for-profits, dividends, interest, royalty payments, and other regulated purposes no longer register with the Central Bank. The only requirement is to pay the tax.

Increase in the cash limit that each passenger can have when leaving or entering Brazil

It will change the current maximum of 10,000 reais ($1,750) to $10,000, equivalent to other currencies. 

Permission to trade (buy and sell) foreign currency between individuals

The transaction must be casual and non-professional. There will be no need for identification or charges, respecting the limit of up to $500. The objective is to enable the sale of foreign currency leftovers after an international trip, for example.

International PIX and digital real

The new foreign exchange law also paves the way for the implementation, within three years, of the so-called international PIX (Brazilian instant payment system); that is, the possibility of transferring funds abroad in real-time. 

According to the BC, this digital transaction and facilitating will reduce the costs of purchases, transfers of resources, and making payments for products and services contracted in other countries. However, the price of the digital real against other currencies may differ from the traditional real. 

New competitors

 CNN Business says there is great anticipation of the emergence of new Fintechs as PayPal, PagSeguro, and Paid Market in foreign transactions of up to $100,000, comprising individuals and small imports and exports. “Today, just under 200 institutions are authorized in Brazil to operate the foreign exchange,” said Garcia from Travelex. “As of the new regulation, there are already 1,600 institutions ready to also have this authorization, including fintech and payment institutions.”

Specialists are optimistic. According to the Chief Economist of Economic Analysis, André Galhardo, this change will positively impact the attractiveness of foreign investments and open space for the growth of trade foreign.

For William Baghdassarian, an Economist at Ibmec Brasília, the new law “will facilitate the opening of the Brazilian economy to exports and purchases of products from abroad, increasing competition for Brazilian companies and contributing to the fight against inflation.”

If you are thinking of internationalizing your business, importing or exporting products, schedule a conversation with one of our specialists now.

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