MercoPress. South Atlantic News Agency

Brazil remains faithful to the dollar and has no plans to sell US Treasuries

Central bank has 348 billion dollars in reserves of which 211 billion in US debt

Brazil has no plans to sell US Treasuries or change its foreign currency reserves holdings as a result of Standard & Poor’s downgrade of the US’s credit rating, a government official said.

Brazil, the fifth-largest holder of US Treasuries, is not required to sell any of its US debt holdings as a result of the downgrade, said the official, who declined to be named because he is not authorized to discuss the country’s reserves policy publicly.

Brazil will continue a policy initiated a few years ago to gradually diversify its foreign reserves away from US dollar assets, said the official. The government is watching the situation closely and stands ready to take steps to protect Brazil’s economy from a global crisis if needed, the official said.

Brazil’s foreign currency reserves have jumped 35% in the past year, to a near-record 348 billion as of Aug. 4. About 211 billion is held in US Treasuries, making it the U.S. government’s fourth-biggest creditor after China, Japan, oil countries and the UK.

While volatility is likely to increase in the coming days, Brazil’s government doesn’t expect investors to dump US Treasuries because they remain among the world’s safest and most-liquid assets, the person said.

S&P dropped the ranking one level to AA+, after warning on July 14 that it would reduce the rating in the absence of a “credible” plan to lower deficits even if the nation’s 14.3 trillion dollars debt limit was lifted.

S&P downgrade went further than Moody’s Investors Service and Fitch Ratings, which affirmed their AAA credit ratings for the US on Aug. 2, the day President Barack Obama signed a bill that ended the debt-ceiling impasse that pushed the country to the edge of default.

S&P currently gives 18 sovereign entities its top ranking, including Australia, Hong Kong and the Isle of Man, according to a July report. The UK which is estimated to have debt-to-GDP this year of 80% also has the top credit grade.