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Inflows and Outflows

In the context of foreign exchange, Inflows and Outflows are terms that describe the two directions of the flow of foreign currency in relation to Brazil.

Simply put:

  • Inflows: All foreign currency that enters Brazil.
  • Outflows: All foreign currency that leaves Brazil.

The balance between the volume of inflows and outflows is what most influences the exchange rate on a daily basis. If there are more inflows than outflows, the supply of dollars increases and its price tends to fall. If outflows exceed inflows, the demand for dollars increases and its price tends to rise.

Main sources

Main Sources of Inflows Main Destinations of Outflows
Exports of goods and services Imports of goods and services
Foreign investment in Brazil Investments by Brazilians abroad
International loans taken Payment of external debts
Revenue from tourism in Brazil Expenses of Brazilians traveling abroad
Receipts for services provided abroad Remittance of profits and dividends
Personal transfers received from abroad Maintenance of residents abroad

Importance of the Trade Balance

In the context of foreign exchange in Brazil, the Trade Balance is one of the most important economic indicators, as it directly influences the supply and demand for foreign currency in the country, impacting the price of the dollar.

The formula is simple:

Trade Balance = Value of Exports - Value of Imports

Thus, following the law of supply and demand, there are three possible scenarios as a result of the above formula:

  • Trade surplus: there is a large inflow of dollars from exporters, exceeding the outflow of dollars to pay for imports. Thus, the supply of dollars increases, which causes the price of the dollar to fall.

  • Trade deficit: in the opposite scenario, there is a greater need to buy dollars to pay for imports. So, with the higher demand for dollars, the supply of the currency decreases, which causes the price of the dollar to rise.

  • Trade balance: obviously, the third possibility is that there is a balance between the inflow and outflow of foreign currency. As a result, the pressure on the exchange rate will be lower, generating stability and, mainly, predictability of the dollar rate.

What is more interesting for the economy, the appreciation or depreciation of the dollar?

This question is probably one of the most important in the Brazilian economy and the answer is that there is no better scenario for everyone. The truth is that both a rising and a falling dollar create winners and losers in different sectors of society and the economy.

What everyone agrees on is that the worst scenario for the economy is volatility, that is, for the Brazilian economy, a stable and predictable dollar is more beneficial than the judgment about appreciation or depreciation.

Some characteristics regarding the rise or fall of the dollar rate:

Characteristic Dollar RISING Dollar FALLING
Inflation Tends to increase Tends to decrease
Exporters Benefited Harmed
Importers Harmed Benefited
Purchasing Power of the Population Decreases Increases
Competitiveness of National Industry Increases (against foreign products) Decreases (due to competition from imports)