“Brazilian Real”

definition

The Brazilian real is the official currency of Brazil, its ISO code is BRL, and its symbol is (R$). The Banco Central (the Brazilian central bank) issues the real do Brasil, and its value is subdivided into 100 centavos.

The real is a relatively modern currency, as it was adopted in 1994, to replace the cruzeiro real (CR$) in an attempt to stabilise the Brazilian economy. In the early 1990s, the Brazilian economy was in serious trouble after more than 10 years with inflation figures over 100% (YoY). In 1993, consumer prices peaked at 2,477% with shops changing their price tags twice each day.

In 1994, the Brazilian real was introduced, with the initial value of 2,750 cruzeiros reals, the equivalent of one U.S. dollar at the time.

 

The real plan

The economic stabilisation plan, also known as “the real plan” was a success and the real unexpectedly appreciated against the dollar, favoured by large capital inflows into Brazil. However, the actual exchange rate was tightly controlled by the Brazilian central bank, which intervened in currency markets, selling dollars to keep the value of the BRL steady.

In the second half of the 1990’s, the Mexican peso crisis and the crises in Asia and Russia posed a serious challenge to the stability of  BRL. The real depreciated from parity with the dollar to 1.20 BRL per dollar in 1998. In 1999, the Brazilian government, unable to maintain the exchange rate in an adverse economic period, was forced to allow the exchange rate to float, and the real devaluated to BRL 2 per U.S. dollar.

 

The 21st century

The Brazilian real would continue depreciating in the first years of the 21st century. The victory of Lula Da Silva in 2002, considered a leftist radical by the financial markets, triggered massive capital outflows that caused a spike in inflation and further real devaluation, which hit historic lows at BRL 4 per U.S. dollar.

After taking office, Lula’s government committed to following orthodox macroeconomic policies, which meant targeting inflation, primary fiscal surplus, maintaining free-floating exchange rates and paying the public debt. The crisis subsided, and the Brazilian real appreciated, peaking at BRL 1.50 per U.S. dollar in 2008.

In 2011, the financial crisis hit Brazil hard. The price of Brazil’s main exports plunged as demand declined and the real depreciated again to hit record lows BRL 4.20 per U.S. dollar in 2016.

Although the Brazilian real is officially a free-floating currency since 1999, the Brazilian central bank remains active in the currency markets to manipulate the exchange rate through open market operations. Therefore, traders consider the BRL as a dirty float of a managed floating currency.