BRL – Brazilian Real

Brazilian real

BRL – Brazilian Real

The Brazilian Real is without a doubt, one of the youngest currencies in the world as it came into existence in 1994 and some have even went as far as to comment that it is also the most artificially contrived currency as well. The reason for such a seemingly harsh and critical comment is due to the fact that the Brazilian Real was only introduced as a direct consequence of a series of sweeping and highly radical monetary and economic reforms proposed under the Plano Real.

In a country were poverty was reaching record levels, significant amounts of tax revenue were lost and siphoned from legitimate use by virtue of corruption, political graft, drug trafficking, extortion and money laundering and where debt reached an all time high something had to be done. Although many have been quick and vocal when it comes to criticising and condemning the Plano Real policy and its proposals, it is crucial to appreciate that immediately before it was introduced, Brazil had endured 30 years of continuous hyperinflation.

The Plano Real policy was designed to reboot the Brazilian economy and to ensure that the value of its currency would be pegged and intertwined with the US economy as well. The rationale behind this was that in doing so, this would hopefully provide the currency with some much needed stability, equilibrium and cohesion that had been woefully absent for such a prolonged period of time in the country.

Unfortunately, although the Plano Real policy had some grand ambitions and great ideas, its reign quickly encountered something of a rocky start shortly after it was introduced.

Initially, economists and financial experts alike were delighted with the introduction of the Brazilian Real for it finally gave the country a much needed boost of fiscal credence across the international community. Furthermore, the Brazilian Real managed to defy initial expectations as it actually exceeded the value of the US Dollar and so in 1995 it reached its highest value in its history to date, 1 Brazilian Real for 1.20 US Dollars.

However, the only reason for this sudden and seemingly impressive upturn and improvement in the fortunes of the Brazilian Real was due to the fact that there was during this time, a very substantial amount of investment capital being submitted. Once the sources of capital began to dry up, this meant that the economy faltered and then began to fail entirely.

The Central Bank, eager to ensure that the saviour of the Brazilian economy would not go down the same doomed and torturous path as its predecessors introduced a series of tough procedures to cap inflation and ensure that the value of the Brazilian Real did not spiral out of control. For a while, it seemed that the Bank had managed to intervene at just the right moment with the right amount of pressure and progress.

Unfortunately, 1999 quickly proved to be the downfall as well as the beginning of the chapter in the history of the Brazilian Real as the value of it plummeted to 2 Brazilian Real to 1 US Dollar. This downturn continued for the following years, with the final result being that the value of the Brazilian Real finally reached 4 Brazilian Real per 1 US Dollar in 2002.

The Brazilian Real crisis has become something of a flashpoint within the world of Brazilian politics and indeed, there have been presidential candidates who have had their careers and reigns made and broke as a consequence of the Brazilian Real and its progression.

Currently there seems to be some tentative indicators that the Brazilian Real is on the road to recovery. Only time can tell.

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