Emerging Markets Rates and Currencies Handbook

69 Citi | Emerging Markets Currencies Handbook 2021 Citi in Brazil Citi opened in Brazil in 1915. Citi operates as a full investment bank in Brazil (banco múltiplo). Market Overview The Central Bank of Brazil, known as “Bacen”, regulates all currency flows in and out of the country. According to local regulation, the Brazilian Foreign Exchange regime does not permit free convertibility of the currency. Therefore, in Brazil, FX transactions must be executed with an institution authorized by Bacen to carry out such transactions, which shall be responsible for ensuring compliance with the local foreign exchange regulation. Also, every FX transaction must be formalized through an FX contract and registered into Bacen’s system. The Central Bank manages the local currency under a free-float regime; however, it intervenes through the spot, swaps and/or futures markets when it deems necessary. The currency is the BRL (Brazilian Real or simply Real) and the quoting convention is BRL per US dollar (1 pip = 0.0001 BRL). The benchmark rate, known in the market as the PTAX, is the arithmetic average of four intra-day quotes made by the Central Bank with dealer institutions every business day. Most of the FX volume is generated in the spot or futures market. 1m tenor for futures is most liquid. Options are traded both onshore and offshore, with liquidity concentrated under the 1y tenor. In terms of currency pairs, most volume is dominated by USD/BRL, which accounts for about 90% of the total flow. Convertibility BRL is a restricted currency with convertibility regulated by the Central Bank. With very few exceptions for companies in specific industries, only BRL accounts are allowed in Brazil but Brazilian companies are allowed to have offshore accounts. BRAZIL (BRL — Brazilian Real)