So they used the real, which was fake, to make the money that was real fake, so they could make real money out of the fake real. Dr. Seuss would be proud.
Dr. Seuss would be proud.
Or Baudrillard.
How Fake Money Saved Brazil
81–90 of 136 posts
Re: How Fake Money Saved Brazil
#82Anyone here who experienced post-Soviet currency collapses would instantly remember prices in У.Е. ("convention unit", in reality a legal way to put U.S. dollar price tag), monthly re-indexed МРОТ ("salary unit"), and so on. Alone they did not help anything, until economy and fiscal policies fundamentally changed.
Re: How Fake Money Saved Brazil
#83I don't understand something about this story.
Hyperinflation is primary caused by government printing money right? So if switching to another currency helped stop this...I get how it could help people changing their perceptions, but wouldn't the root cause be that the government stopped printing money with the new currency?
It seems like it would have been almost as effective if they had simply stopped printing more of the original currency until things stabilized?
Maybe I'm missing something. But the article seems to put too much weight on this clever idea of shifting to a new currency. While if monetary policy had stayed the same with the new currency I don't think it would have made any difference. The monetary policy here was the important part, not the new currency.
Re: How Fake Money Saved Brazil
#84Earlier quoted context omitted.
Inflation is a useful tactic to make RPG style games addictive. I worked with someone who built a popular facebook RPG game, and part of what made it popular was that as you became an established player the amount earned per day rose exponentially. As the game became more and more popular the virtual economy started to hyperinflate almost out of control, and the established players started hitting the MySQL integer l…
Good story, reminds me of a favorite quotation: The greatest shortcoming of the human race is our inability to understand the exponential function. — Albert Bartlett
From what I've seen, I think that we don't understand S-curves, either. No matter which side of it we're on.
They can look exponential... until they hit the limit.
Re: How Fake Money Saved Brazil
#85I don't understand something about this story. Hyperinflation is primary caused by government printing money right? So if switching to another currency helped stop this...I get how it could help people changing their perceptions, but wouldn't the root cause be that the government stopped printing money with the new currency? It seems like it would have been almost as effective if they had simply stopped printing more…
I had the same question. The Wikipedia article on the URV lead me to "Inertial inflation."
In the medium-to-long term, economic agents begin to forecast inflation and to use those forecasts as de facto price indexes that can trigger price adjustments before the actual price indices are made known to the public. This cycle of forecast-price adjustment-forecast closes itself in the form of a feedback loop and inflation indices get beyond control since current inflation becomes the basis for future inflation (more formally, economic agents start to adjust prices solely based on their expectations of future inflation). At worst, inflation tends to grow exponentially (leading to hyperinflation).
Re: How Fake Money Saved Brazil
#86Heh. I always assumed that the name of the currency, real, has the meaning "royal". Instead, it's literally the same as the English word. What an interesting story. Have any other governments suffering from high inflation tried this? Instead of calling it a fictional unit, they could also just use an existing currency like the euro for the transitional period, then switch to a new national currency that has an initia…
you mean somewhere like zimbabwe trying this? It would be particularly tough since they have 1000% monthly inflation or some other insanity. i don't think zimbabwe has enough control on their economy to pull this off.
Zimbabwe doesn't have a currency anymore.
They gave up and went to nationally accepting the dollar (USD), pula (Botswana), or rand (SA).
Helped things a lot. :-)
Re: How Fake Money Saved Brazil
#87"He said, 'Well, I've just been named the finance minister. You know I don’t know economics, so please come to meet me in Brasilia tomorrow,' " Bacha recalls. So, three things had to happen: 1. A politician had to admit his ignorance 2. Some bright spark technocrat somewhere had the right solution to a seemingly impossible problem. 3. The right politician asked for help from the right technocrat They're not kidding.…
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…
Wow, I guess that explains the uptick in the brazilian population in South Florida during that time. One year of school I only knew one brazilian kid on the bus. The next year over half the bus was brazilian. Big migrations like that usually happen because of economic reasons or war. I just never put 2 and 2 together until now.
Re: How Fake Money Saved Brazil
#88"He said, 'Well, I've just been named the finance minister. You know I don’t know economics, so please come to meet me in Brasilia tomorrow,' " Bacha recalls. So, three things had to happen: 1. A politician had to admit his ignorance 2. Some bright spark technocrat somewhere had the right solution to a seemingly impossible problem. 3. The right politician asked for help from the right technocrat They're not kidding.…
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/…
Of course there is no "real value". However, inflation is not solely the result of the government's wishes to inflate the currency (as examples of hyper-inflation obviously show).
Inflation is also simply in the minds of the people using the currency. If everyone expects high inflation, and keeps raising their prices to match their expectation of inflation, then inflation will happen - the raising of prices will ensure that. And if you try to fix that by force, as you pointed out, the inflation accelerates even more, because it's now happening in a black market with even more waste.
The way they fixed inflation in Brazil was, it appears, by changing people's expectation of what should happen to currency. They had to get everyone to believe that the brazilian currency can be stable. The mechanism they used to do that was the cheap trick of creating an alternative currency and calling it "real". It may be a cheap trick, but from the look of it, it worked.
Re: How Fake Money Saved Brazil
#89Anyone here who experienced post-Soviet currency collapses would instantly remember prices in У.Е. ("convention unit", in reality a legal way to put U.S. dollar price tag), monthly re-indexed МРОТ ("salary unit"), and so on. Alone they did not help anything, until economy and fiscal policies fundamentally changed.
Until oil prices skyrocketed, I'd say.
Re: How Fake Money Saved Brazil
#90Anyone here who experienced post-Soviet currency collapses would instantly remember prices in У.Е. ("convention unit", in reality a legal way to put U.S. dollar price tag), monthly re-indexed МРОТ ("salary unit"), and so on. Alone they did not help anything, until economy and fiscal policies fundamentally changed.
Until oil prices skyrocketed, I'd say.
Inflation receded by 1996, well before oil prices went up.