20,000 euros in Brazilian reais: a costly exchange rate gamble

20,000 euros in Brazilian reais: the ruin of exchanging at 2.80 per euro

A move to Rio de Janeiro, a bank account with interest rates that sounded like science fiction in Spain, and a decision made three years ago: converting 20,000 euros to Brazilian reais when the exchange rate was 2.80. Today, one euro buys 4.60 reais, and reversing the operation consumes almost half the capital. The affected individual summarizes it without embellishment: not a day passes without him crying inside for having brought the money back. The question he poses is one anyone facing a similar situation asks: do I sell now and accept the loss, or wait for the Brazilian currency to recover?

The case has an expiration date. The person involved has lived in Brazil for four years and plans to return to Galicia in August 2016. He has two trips left before the final one. He does not urgently need the money: he has training, family, and resources in Spain. This gives him room to hold, but also to keep losing if the real continues its decline.

Why has the Brazilian real depreciated so much against the euro?

The most repeated explanation points to the collapse in oil and commodity prices, from which Brazil is a net exporter. This is compounded by the expansive credit cycle the country trinc during years of boom, a model some openly compare to that preceding the Spanish housing crash. External dollar debt, drought in the São Paulo region, and China’s slowdown complete the picture that several analyses describe as a perfect storm.

The diagnosis is not unanimous. Some argue that dollar strength is punishing all emerging currencies equally — the Turkish lira, South African rand, Indian rupee, and Russian ruble are also at lows — and that the real is merely trinc the trend. In this scenario, recovery would come when the Federal Reserve raises rates and commodity prices stop falling. The problem is the timeline: no one sets a date.

Exchanging now or waiting: the dilemma of realizing the loss

The dominant view in the conversation urges not to sell in full panic. Selling at lows converts an accounting loss into a real one, and the argument repeats: if you don’t need the money, it’s better to wait. Against this, the opposing view warns that the country may continue to deteriorate and that waiting has an opportunity cost not shown in any chart.

The middle option gains adherents: exchange a percentage now — around 30% or 40% — and leave the rest waiting for a rebound. The reasoning is psychological rather than financial. If the exchange rate goes to 6 reais per euro, panic would lead to selling everything at any price; having secured a portion beforehand mitigates that scenario.

The Rio Olympics as an exit window

The Olympic event functions in the conversation as an unofficial deadline. Several analyses agree that the event may provide temporary relief to the Brazilian economy and exchange rate, and that a real adjustment would trinc. The repeated recommendation is to move the money before the Games end, not after. The cited precedent is the crash after the 1992 Barcelona Olympics.

The affected individual himself acknowledges that if the euro stays around 4 reais, the trade of second-hand electronics — DSLR cameras, phones, tablets — no longer compensates. That was his initial idea to bypass official exchange: buying devices in Brazil and reselling them in Galicia. He invested about 5% of the total this way, with an effective exchange rate of 3.30 reais per euro. A result he calls wonderful, though insufficient to move the bulk of the capital.

TransferWise, bitcoins, and other ways to get money out of Brazil

The terrain of alternatives to traditional banking exchange is where the conversation has evolved most. TransferWise appears as the most cited option, though at the time of discussion it did not offer the Brazilian real among its operational currencies. Bitcoin generates division: the idea is recognized as interesting for moving money at low cost, but its volatility is warned against, along with the fact that it has already antiestéticatured several bubbles in just five years. The prevailing recommendation is to use it, if at all, with a small experimental amount.

Opening US dollar accounts outside Brazil is also suggested, as such accounts are not permitted within the country. Currency hedging exists, but requires knowledge the person posing the problem admits he lacks. This is, essentially, the root of the issue: a decision made without sufficient information and with the promise of interest rates unimaginable in Spain.

The exact point where the analysis gets stuck

The real has appreciated to around 3.90 per euro, far from the 4.75 it once reached. Brexit moved the exchange rate to 3.64 in a single day. The Olympic window is closing, and the decision remains unmade. No one knows if the rebound is the start of a recovery or just a pause before the next fall.