Brazil is extending a tax on foreign borrowings with further capital controls on the way

Brazil declares new 'currency war'

Guido Mantega, the finance minister who was the first to use the controversial term in 2010, said the government would not "sit by passively" as developed nations continue to pursue expansionary monetary policies at the expense of Brazil.

President Dilma Rousseff later weighed in on the debate, vowing to defend Brazilian industry and stop developed countries' policies from causing the "cannibalisation" of emerging markets.

Brazil is extending a tax on foreign borrowings and threatening further capital controls in an effort to protect the country's struggling manufacturers.

In a presidential decree, the government extended the existing 6 per cent financial transactions tax on overseas loans maturing in up to three years. Previously, the levy was applied only to loans with maturities of under two years.

Countries from Colombia to Thailand have also followed suit with their own currency measures, and even the International Monetary Fund was seen to tacitly endorse the use of capital controls last April, giving Brazil's government further ammunition.

However, the crisis in the eurozone eased pressure on Brazil's currency late last year, and a flurry of debt issuance this year has made the real one of the biggest gainers of 2012.

sources:
CNN