: How did Brazil tackle hyperinflation?

187 views

[ad_1]

Edit- I know how they created a virtual currency to build confidence, and after a point declared the virtual one as the official currency, but I wanted to know how it was tackled by that step.

In: Economics
[ad_2]

By installing a new, non-valued currency (later named the real) that was attached to the dollar, which would balance it out instead of shed value and continue the cycle. Every payment was made in the old currency that kept losing value until the real was ready to be introduced, which would be after the interest rates were raised to attract foreign investment and enable the real to momentarily overtake the dollar in nominal value, which would fuel imports and block demand-induced inflation.

Planet Money had a podcast dedicated exactly to this case. Not so in-depth but I would highly recommend listening to it for a good explanation of the policy that was followed.

[https://www.npr.org/sections/money/2015/12/02/458222801/episode-216-how-four-drinking-buddies-saved-brazil?t=1611427574666](https://www.npr.org/sections/money/2015/12/02/458222801/episode-216-how-four-drinking-buddies-saved-brazil?t=1611427574666)

It’s a really interesting story that I won’t be able to do justice.

Brazil created a parallel currency to the cruzeiro real called the URV (trans: ‘ real value unit’) pegged to the US dollar and let the cruzeiro real continue to hyperinflate. For a period, financial statements were published in both currencies to establish trust. Then over about a month and a half, the old real was replaced by the new real.