Brazil: The Newly Consolidated Brazilian Foreign Exchange Market

Last Updated: 6 May 2005
Article by Walter Stuber

At a special session of March 4, 2005, the Brazilian Monetary Council approved Resolution Nº 3265 that simplifies the exchange rules theretofore in force and are part of the broader effort of economic reforms aimed at boosting the Brazilian economic production.

The premises spelled out in the law have been maintained, the required denomination in national currency remains unaltered; transactions are subject to registration with the Brazilian Central Bank (Bacen); transactions need to be made by way of exchange agreements; funds abroad or for the purpose of recording foreign capital, funds need to enter the country; exportations need exchange coverage; importations need to be paid; and private offsets of credits is are prohibited.1

Resolution Nº 3625/2005 regulates the consolidation of two previously existing Foreign Exchange Markets. As a result, the regulatory differences existing between the Free Exchange Rates Market (MCTL) and the Floating Exchange Rates Market (MCTF) no longer apply. Only one Foreign Exchange Market subject to one single set of rules, published by the Brazilian Central Bank (Bacen) will exist. The new Foreign Exchange Market is governed by Bacen’s Foreign Exchange Market and International Capitals Regulations (RMCCI) created by Circular Nº 3280, of March 9, 2005. 2

For the purpose of that regulation, "resident" means individuals or legal entities resident, domiciled or with head office in the country and non-resident means individuals or legal entities resident, domiciled or with head office abroad.

International transfers in national currency (real) made via foreign-denominated deposit accounts in the name of non-resident institutions in the country with banks accredited by Bacen to operate on the Foreign Exchange Market are no longer allowed.3 These non-residents accounts are usually known as "CC5 accounts".4 Previously, a resident was able to credit funds to a CC5 account in the name of a financial institution headquartered abroad, and such funds were subsequently converted into foreign currency and remitted abroad. These accounts in the name of financial institutions headquartered abroad are now subject to the same treatment as the other CC5 accounts of other non-residents, and may no longer be used on account of third parties. That is, any balance in national currency in a CC5 account owned by the account holder, if to the benefit of the holders themselves, may be freely converted into foreign currency for remittance abroad. Those remittances must be made solely by way of bank accredited to operate in the Foreign Exchange Market.

The Foreign Exchange Market includes the purchase and sale of foreign exchange, trading in national currency between residents or non-residents and transactions with gold-exchange instrument, carried out via institutions accredited by Bacen to operate in the Foreign Exchange Market.5

The authorization to trade in the Foreign Exchange Market may be granted by Bacen to commercial, multi-service, investment, development, savings banks; loan, finance and investment companies; foreign exchange brokers or stockbrokers and dealers, travel agencies and means of accommodations. The institutions so accredited are called authorized agents.

The banks (except development banks) may carry out all the transactions allowed for the Foreign Exchange Market. Development and saving banks may carry out only the specifically authorized transactions. Financial institutions, stockbrokers and dealers may only purchase or sell foreign exchange ("FX") from and to customers in cash, checks and traveler’s checks, interbank market transactions, arbitrages in the country and, through bank authorized to operate on the Foreign Exchange Market, arbitrages abroad. Travel agencies may purchase and sell FX in cash, checks and traveler’s checks in connection with international trips. The means of accommodations may only purchase FX from customers in cash, checks and traveler’s checks. Therefore, travel agencies’ and means of accommodations’ articles of organization must include the FX transaction as a corporate purpose.

Authorized agents may keep a free activity account in foreign currency with banks accredited to trade in the domestic Foreign Exchange Market. Foreigners temporarily in the country and Brazilians resident abroad can also open and operate foreign currency deposit accounts. Bacen may authorize certain non-financial entities to keep activity account exclusively in foreign currency with a bank accredited to trade in exchange domestically. Those non-financial entities are the following: (i) the Brazilian Postal Service Company – ECT; (ii) credit card management companies; (iii) travel agencies; and (iv) operators and providers of incoming and outgoing tour services, whether or not accredited to operate on the Foreign Exchange Market. Revocation, cancellation or withdrawal of said authorization results in the closing of foreign currency-denominated account and sale to an authorized agent of the existing balance, within the time limit established by Bacen. No payment order from abroad can be subject to a payment schedule and must be traded within 90 days maximum of the date funds are available for payment. Thereafter, the payment order must be canceled and returned to the sender.

In order to be accredited to operate on the Foreign Exchange Market, the institution participant in the Brazilian Financial System must: (i) have realized capital and reference equity not lower than those established in specific laws and regulations, keeping their levels for the validity of the authorization from Bacen; and (ii) designate, among the Bacen-accredited officers, one to be the contact for Foreign Exchange Market transactions.

ECT6 and credit cards management companies7 which, as previous mentioned, are allowed to keep foreign currency-denominated accounts in the country, of limited activity, continue as participants of the Foreign Exchange Market.

Institutions not authorized to operate on the Foreign Exchange Market may carry out FX transactions provided that: (a) they act pursuant to mandate of the authorized agent; and (b) secure prior consent from Bacen to act in this capacity. In order to be able to do so, unauthorized institutions will be required to enter into specific agreements with the authorized agents. The regulation emphasizes that the responsibility for having the FX rules fully complied with is with the authorized agent.

Individuals or legal entities may purchase and sell foreign currency, or make international transfers denominated in Brazilian reals, of any kind and at any amount. Assumption of commitments abroad, including the giving of guarantees to companies receiving Brazilian investments abroad from their respective national investors no longer requires prior approval of Bacen. It is, therefore, allowed liquidation on the Foreign Exchange Market, in equivalent foreign currency, of national currency-denominated commitments, of any kind, assumed by residents and non- residents. Transfers shall be made directly through banks, upon submission of the respective documents.

These transactions may be carried out on the Foreign Exchange Market by way of authorized agents, provided that they are legally allowed transactions and the accountability requirements established in the respective documentation are met.

Residents may also purchase and sell foreign exchange through banks accredited to operate on the Foreign Exchange Market for the purpose of their accounts abroad (residents are allowed to keep accounts in their own names with financial institutions abroad) or return of funds to the country.

In addition to the keeping funds in account abroad as mentioned above, included in possible investments abroad are the following: (i) direct investment, that is direct or indirect ownership interest in company organized outside Brazil; (ii) investments in the financial market; (iii) loans to parties domiciled abroad; (iv) putting of guarantees abroad by non-financial legal entity; (v) installation and maintenance of office abroad; and (vi) other investments, such as purchase of residential or business real property and other goods, rights and assets.

Investments abroad in capitals market and derivative by individuals or legal entities in general, as well as any investments abroad by institutions accredited by Bacen to operate in the country and funds of any kind, must abide by specific regulation.

Capital transferred as investment and income earned abroad may be reinvested, included in other assets, due respect being given to the purpose(s) allowed under applicable regulation.

The same rules apply to Brazilian investments with portfolio, to wit: (i) on capitals markets of countries undersigning the Mercosur Treaty;8 (ii) Brazilian Depositary Receipts (BDRs);9 (iii) Overseas Investment Funds (FIEX);10 and (iv) Depositary Receipts (DRs) for Brazilian nationals.11

Remittances abroad for the acquisition of shares by employees of Brazilian companies in foreign economic groups ("stock options") can also be made by the employee himself/herself, without limitation as to the amount.12

Investments abroad in the interest of the public sector can be made as any other transaction in the interest of the private sector, Bacen’s clearance being unnecessary. It is up to the corresponding governmental body to check for compliance with the rules and conditions applicable to transactions being made.

Transfer of funds for establishment of office outside Brazil and ownership interest, whether directly or otherwise, abroad, in the interest of financial institution or the like, accredited to operate by Bacen, may be made with any bank authorized to carry out FX transactions, under the following conditions: (i) upon authorization of Bacen/Deorf, in the case of office or ownership interest in financial institution or the like abroad; and (ii) upon submission of respective documentation, in the case of ownership interest in overseas company other than financial institution or the like.

In transactions associated with direct investments abroad it is still not necessary to render accounts, present proof of capitalization of the amounts remitted and the list of documents to be submitted to the bank selling/purchasing the foreign currency to Bacen.

Any transaction on the Foreign Exchange Market must (i) be input to the Bacen’s Information System – Sisbacen;13 (ii) comply with Bacen’s operating provisions; and (iii) adhere to the guidelines and procedures of specific laws and regulations.

The maximum time for settling FX transactions is 720 days, of the effective date of transaction, due respect being given to the time fixed by Bacen, depending on the kind of transaction. Any extension of that time will only be approved by Bacen in exceptional occasions. The instrument effecting and ranking the FX transaction (exchange contract) must be according to standard provided by Bacen. Said exchange contract may not have the buyer, seller, amount of foreign currency, foreign currency code or exchange rate changed under no circumstance.

FX transactions lower than US$ 50 mil or equivalent in other currencies can be freely cancelled by mutual agreement between the parties to it or written off of the FX position of intervening institutions.14

The sale of foreign currency whose equivalent value in national currency exceeds R$ 10 mil, per client, the amount in Brazilian reals will be taken to debit to account held by the buyer or paid by way of check written thereby and made to the order of the selling agent, for deposit only and non-endorsable.15 Likewise, purchase of foreign currency whose equivalent amount exceeds R$ 10 mil, per client, will have its real-denominated value credited to the account of the seller or by way of check written by the agent authorized to trade on the Foreign Exchange Market, made to the order of the seller of the foreign currency, for deposit only and non-endorsable.16

Authorized agents, as well as international-use credit or debit card management companies and companies making international postal financial transfers, are responsible for the compliance with laws and regulations governing transactions in the Exchange Market. It is up to the authorized agents to abide by the rules for the perfect identification of its clients and determine responsibilities of the parties involved and the legality of the transactions being made.

The exchange rate can be freely agreed by the authorized agents and between the authorized agents and their clients. In transactions for forward or immediate settlement, this rate must factor in only the price of the currency negotiated on the date of contracting of FX transaction. However, in the event of forward settlement, the parties may fix payment of the premium or bonus as established by Bacen. If the exchange rate levels are incompatible with those found in the marketplace or that constitute exchange evasion, artificial or manipulated pricing, the authorized agent shall be subject to the penalties and other sanctions provided in the laws and regulations in force and applicable to the purchase and sale of foreign currency.

This exchange consolidation is expected to reduce significantly the costs associated with FX transactions and, consequently, increase the efficiency of the Brazilian economy.


1 Private offset of credits means the settlement of debts and credits between residents and non-residents in the country, without exchange activity, by way of simple accounting entries, which is prohibited by art. 10 of Decree-law nº 9025, of February 27, 1946.

2 The RMCCI also deals with Brazilian capital abroad and foreign capital in the country.

3 International transfers in national currency are credits or debits made to a non-resident’s account. The same criteria, provisions and requirements applicable to exchange transactions in general and specific guidelines apply in this kind of transfer.

4 "CC5 account" is a term that result from the fact that non-residents accounts were originally regulated by Circular Letter nº 5, of February 27, 1969 (in Portuguese Carta Circular), that continued to be used on the market still some time after its revocation.

5 In the sale and purchase of gold-exchange instrument against national currency and in the arbitrages with gold-exchange instrument against foreign currency, by institutions accredited to trade in the Foreign Exchange Market, the same rules applicable to sale and purchase of foreign currency apply, making the position and affecting their limits indistinctively.

6 ECT’s is a limited activity account and is subject to the following: (a) can only be opened and kept with foreign denominated funds from purchase transactions by the ECT on the Foreign Exchange Market or financial transfers in favor of ECT from overseas; (b) the amounts kept in account are intended exclusively for the payment of international post offices due to use international postal money order and post-payment; (c) should be maintained with one single bank accredited to trade on the Foreign Exchange Market; (d) balance should not exceed the limit necessary to make those payments; and (e) it is prohibited the receipt in the country of foreign currency.

7 Foreign currency denominated restricted activity account held by international credit card management companies of restricted activity must be held under the following conditions: (a) can only be opened and kept with foreign denominated funds from purchase with authorized banks of the amounts corresponding to the amounts used by international credit card holders; (b) the amounts to be kept in the account are exclusively for payment to international credit card companies regarding the use of Brazilian credit cards abroad and duty free shops in the country; and (c) it is prohibited the receipt of foreign currency by the holder of account or its conversion into national currency.

8 Investments within the Mercosur are limited to the following: (a) purchase and sale of shares and other securities at sight on stock exchange; and (b) investments in positions on the Options and Futures Market referenced in securities, interest and FX rates, kept by Stock and Commodities and Futures Exchanges, with the sole purpose of hedging for the respective securities portfolio.

9 BDRs are certificates representative of securities issued by publicly-held companies or the like, headquartered abroad and issued by depositary institution in Brazil, and are subject to the provisions in Resolution Nº 2763, of August 9, 2000 of the Brazilian Monetary Council, of Circular Nº 2996, of Bacen even date and complementary regulation.

10 FIEX is a fund established in the country as an open-end condominium, in which only individuals and legal entities, funds and other collective investment entities residents, domiciled or with registered office in the country can participate. It is a pool of funds intended for the investment in securities representative of negotiable debts in the international market international and or other operating modalities. Investments in FIEX are subject to provisions of Resolution Nº 2111, of September 22, 1994 of the Brazilian Monetary Council and Circulars Nº 2714, of August 28, 1996, 2786, of November 27, 1997, and 2863, of February 10, 1999 of Bacen and complementary regulation.

11 DRs for Brazilian nationals are certificates representative of shares or other securities representative of rights to shares, issued abroad by depositary institution, backed on securities deposited in specific custody in Brazilian are subject to provisions of Resolution Nº 2356, of February 27, 1997, of the Brazilian Monetary Council , of Circular Nº 2741, of Bacen even date and complementary regulation.

12 Previously, remittances abroad were made exclusively by the national company, limited to US$ 20 thousand a year per employee.

13 Activities in CC5 accounts of or exceeding R$ 10 thousand must be recorded with the Sisbacen, as established by Bacen. All CC5 accounts must inescapably be registered with Sisbacen. However, debits and credits to accounts owned by Embassies, consular divisions or international bodies representative offices accredited by the Brazilian Government are not required to submit documentary evidence and justification to the transfer, and activities of those accounts, including those made for less than R$ 10 thousand, may be made in cash or by way of payment document.

14 Bacen may set the criteria applicable to the cancellation and retirement exchange contracts amounting to over US$ 50 thousand (or equivalent in other currencies). Cancellation, retirement, extension or accelerated settlement of simplified and interbank FX transactions is forbidden.

15 Exceptions to this are: (i) FX-simplified importation transactions and related to payment of international orders, where carried out by way of middleman or representative, which must abide by specific regulation; and (ii) sale of foreign currency whose equivalent amount in national currency does not exceed R$ 10 mil, per customer.

16 Exception to this rules is, therefore, the purchase of foreign currency whose equivalent amount in national currency does not exceed R$ 10 mil, per customer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Walter Stuber
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