How Fake Money Saved Brazil

There's a big difference between inflation and hyper-inflation.

An inflation rate of between 1% and 3% is generally seen as a sign of a healthy economy (There is sufficient demand for products that some prices can naturally rise, without causing economic disruption. It also implies a low unemployment rate, in that the economy is sufficiently close to full employment to be able to tolerate some price movements)

Some central banks even go so far as to formally announce a inflation target, which gives the markets a more predictable way to forecast interest rates. See http://en.wikipedia.org/wiki/Inflation_targeting

OTOH, hyper-inflation implies a lack of confidence in the currency and economy.

In a lot of ways this is similar to unemployment. Generally, low unemployment is good for the economy (and presumably society) until it reaches a point where businesses are unable to grow because of a lack of labor. When economists talk about "full employment" they usually mean this point - where labor constrains the economy - rather than an actual 0% unemployment rate. (While this sounds quite harsh, there are good reasons why any economy will have an unemployment rate greater than 0%. For example, often the centers of population do not coincide with the places jobs are)

"From there to here, from here to there, funny things are everywhere!"

I have been introduced to this masterpiece by reading some of the books to my daughter and it's a real delight, apparently as much for her than it is for me.

I wish I had these books where I grew up.

And it definitely felt like one. You have no idea how much the country changed (for the better) because of this improbable miracle.

Nobody believed it would work because the whole country had lost faith in "magical" economic reforms like the one before it, the Collor Plan.

Imagine you wake up one day and all of your bank accounts are frozen - that's what happened to my parents (and most of the population) on March 16, 1990 when the Collor Plan was announced. It's your money, but you can't spend it - sorry. My father had been saving money in order to buy a new house. Years later he recovered less than 1/10 of the original sum. Lots of small businesses (including family and friends) went broke.

When I talk to my parents about pre-real days it feels like they were born in a different country than I was.

This is really about a different point of view. The miracle is that they managed to teach the masses to look differently at the same thing.

Say, the price of a cheap food is always correlated with the cost of unskilled labor (there will be over-supply or under-supply otherwise), so, you can always easily escape a hunger unless you're sick or disabled. That is how poor people in a poor countries are surviving.

In the simple words, the conditions and relations are the same - rich getting richer and so on. ^_^ What is wrong is the digits written on pieces of a paper.

Think in terms of absolute values and there is no inflation or deflation or market crashes. You just have nothing to lose. You takes pieces of paper in exchange for your time and effort, you gives pieces of paper in exchange for a food and booze.

If you're earning more than you're spending it doesn't matter what digits are written on the pieces of paper.

If you're spending more than you're earning - you're in trouble. Especially in inflation, when your debt will be recalculated to stay ahead of it.

There is no such thing as a "real value" as measured in a vacuum. Value only comes in relation to something: a commodity or a basket of goods. What they did in Brazil was to establish a new currency which the government promised not to inflate, then as inflation destroyed the previous currency, the way was open for the new one. This is how inflation was ended in Weimar Germany, post-WW2 Hungary, '90es Serbia/Romania/Russia. Only Zimbabwe handled things so poorly that the national currency vanished completely.

Even if people learn the value of their inflating money with respect to more stable things, inflation STILL eats away at the value of their savings. It does them no good to learn prices are stable (with respect to an arbitrary standard) except to learn they are indeed getting poorer.

Also, freezing bank accounts and banning the trade of foreign currency only makes matters worse. People not being able to access their money does make them poorer still.

1. You can't inflate at leisure without destroying the currency. 2. You can't have a peg to a foreign currency if you keep inflating faster than that currency's central bank. 3. You can't then cover up for the misdeeds of the government by denying people access to their savings.