12 ms·

How Fake Money Saved Brazil (2010)

162 points by mrb 10y ago

Aldo_MX 10y ago
Previous discussion: https://news.ycombinator.com/item?id=9617710 https://news.ycombinator.com/item?id=9617710
crdoconnor 10y ago
This economic plan - pegging to the US dollar - led to large current account deficits. The only reason why this "worked" was because following the plan imposed by foreign investors (i.e. the IMF) meant that they could secure foreign currency. This still meant that they were basically swapping hyperinflation for racking up a huge external debt instead, and they were essentially more dependent upon foreign investors. The fact that this 'worked' and didn't lead to disaster was probably due to the fact that oil prices kept creeping up. Currency pegging was used in Venezuela too and that story ended in disaster. In terms of poverty reduction, Lula's Bolsa Familia program was more effective than this at actually helping people, but foreign investors love the story about how "Brazil was made safe again for foreign investors".
- whack 10y ago
  Any time you have an entity that's low on capital but high in potential, it's bound to attract outside investors, which is in turn bound to produce current account deficits. This isn't necessarily a bad thing. Having outside investors provide the capital needed to ramp up your operations, can be a huge win-win for both sides. In fact, this is exactly how most successful startups got to where they are today. In contrast, I can't think of a single country with hyper-inflation that had a successful economy.
  - crdoconnor 10y ago
    >Any time you have an entity that's low on capital but high in potential, it's bound to attract outside investors, which is in turn bound to produce current account deficits. This isn't necessarily a bad thing. Taking on large foreign debts has pretty much led to disaster everywhere from Greece to Thailand to Zimbabwe. Where it's "worked out", it's usually been a way for foreign investors to extract wealth from a country's natural resources. Any time anybody tells you that the best way to grow a business is to rack up lots of credit card debt, run. >Having outside investors provide the capital needed to ramp up your operations, can be a huge win-win for both sides. You have to make sure that the outside investors are put on a leash (as they are in China). If you don't, you end up bringing in lots of capital causing a spike of growth for a while, destroying local businesses (who can't compete with foreign businesses) and then when it ends the economy craters and inflation spikes once again. >In contrast, I can't think of a single country with hyper-inflation that had a successful economy. I can't think of a single country with a successful economy that hasn't at hasn't taken the IMF's guidelines and done the exact opposite (contrast South Korea's relative success with Thailand's).
- hga 10y ago
  Currency pegging was used in Venezuela too and that story ended in disaster. Which period are you referring to? Venezuela's biggest problem right now, besides the drought which has hit their electrical supply, is that the government looted the oil industry instead of maintaining it and taking a sustainable vig from it. I haven't looked at the numbers (but see e.g. this production chart: http://www.tradingeconomics.com/venezuela/crude-oil-production http://www.tradingeconomics.com/venezuela/crude-oil-producti...), but as I understand it the lower oil prices are secondary to this, although if they'd maintained, let alone expanded production, I suppose the prices would be even lower....
- digi_owl 10y ago
  Yeah i found that line about them becoming a big exporter right after the URV was introduced more interesting than trying to get people to think in static URVs than inflating Reals. And the moment i read "Catholic university" i found myself thinking about the Chicago Boys. https://en.wikipedia.org/wiki/Chicago_Boys https://en.wikipedia.org/wiki/Chicago_Boys
- jomamaxx 10y ago
  "This still meant that they were basically swapping hyperinflation for racking up a huge external debt instead" This is extremely misleading. There is absolutely no need for a country to be borrowing at such large rages. Your statement seems to imply that countries should get money for free from outside entities. Yes - if your finances are a mess - you're going to have crazy books - hyperinflation or massive debt - pick your poison. The 'fix' is not to change the numbers around, it's to solve the underlying fiscal and investment problems.
- neves 10y ago
  Yes, you are right. URV was a nice hack, but people overestimate its economic brilliance. To confirm that it was something imposed by foreigners, you just have to take a look at the dates when the Latin America hyperinflation ended in each country: Mar. 1990 Brazil Mar. 1990 Argentina Aug. 1990 Peru Mar. 1991 Nicaragua You can see a compiled hyperinflation rates in a table in this paper: http://object.cato.org/sites/cato.org/files/pubs/pdf/workingpaper-8.pdf http://object.cato.org/sites/cato.org/files/pubs/pdf/working... Till today Brazil suffers with a overvalued money. The medium class loves it, because they can travel abroad cheaply and buy imported goods. You should take a look at this Wikipedia page: https://en.wikipedia.org/wiki/Washington_Consensus https://en.wikipedia.org/wiki/Washington_Consensus
  - icebraining 10y ago
    The medium class loves it, because they can (...) buy imported goods. Doesn't Brasil have an import tax of 60%?
- rmsaksida 10y ago
  > The only reason why this "worked" was because following the plan imposed by foreign investors (i.e. the IMF) meant that they could secure foreign currency. Well, yes, that was the idea. > This still meant that they were basically swapping hyperinflation for racking up a huge external debt instead, and they were essentially more dependent upon foreign investors. The fact that this 'worked' and didn't lead to disaster was probably due to the fact that oil prices kept creeping up. Currency pegging was used in Venezuela too and that story ended in disaster. An external debt that was payable and negotiable. And that we were able to pay successfully (though now we have a large internal debt). In any case, having an external debt is not the end of the world. How many countries do it? > Currency pegging was used in Venezuela too and that story ended in disaster Right. That was the reason of Venezuela's disaster... > In terms of poverty reduction, Lula's Bolsa Familia program was more effective than this at actually helping people, but foreign investors love the story about how "Brazil was made safe again for foreign investors". Do you have any idea how destructive inflation is to a poor household? I'm sorry, this is ridiculous. And what does Bolsa Família - a program that was actually a merge of several programs from FHC's previous administration, modeled by Ricardo Paes de Barros around Friedman's negative income tax - have to do with this?
nishnik 10y ago
How did it work?
- woliveirajr 10y ago
  People were used to inflation, and prices would go up as a regular practice. Indexing prices using URV, all prices would increase in a regular pace, all prices together, and inflationary pressure would lose the irregularity (no more uneven increases, that anyone would compensate in the next step). After a while, just rename this fake money to "real", and you have Brazil with its long-surviving money.
whack 10y ago
It's saddening the number of national economies that have been destroyed by politicians who don't understand economic fundamentals. When it comes to most matters like the military for the example, we trust our generals to organise and manage the Armed Forces as per their best judgement. And yet, when it comes to economic policy, we persist in thinking that it should be implemented by career politicians and popular opinion. As long as that doesn't change, I think we're doomed to see endless repeats of such rookie mistakes.
- crdoconnor 10y ago
  >we persist in thinking that it should be implemented by career politicians and popular opinion. This is what economists do when they think we're not paying attention: http://z822j1x8tde3wuovlgo7ue15.wpengine.netdna-cdn.com/wp-content/uploads/2012/11/greece.png http://z822j1x8tde3wuovlgo7ue15.wpengine.netdna-cdn.com/wp-c... That's not "oops". That's not giving two shits about being right because being right doesn't pay the bills. Being wrong does. If you want to see economic destruction on a wide scale, don't listen to the anti-austerity protests. Don't listen to "populist" politicians. Listen to the 'respectable' economists who have an eye on a well paid job at a corporate think tank like CATO. They truly have nothing but objectivity and your best interests at heart.
  - at-fates-hands 10y ago
    >> Listen to the 'respectable' economists Isn't that kind of a subjective opinion? Liberals love to push Keynes economic theories and hold him up as some kind of expert. Likewise, Conservatives love to push Friedman's theories on the economy since it fits with their staunch free market ideas. Even in these circles it would be hard to find someone who's actually objective about what they're seeing.
    - crdoconnor 10y ago
      >Isn't that kind of a subjective opinion? I wasn't using it as such. If an economist gets the ear of a president, is employed by the ECB (as the above economists were) or a column in the New York Times they're 'respectable'. >Liberals love to push Keynes economic theories and hold him up as some kind of expert. Conservatives use his theories too. Republican politicians who fight tooth and nail for military spending in their districts know exactly what they're doing and why. >Even in these circles it would be hard to find someone who's actually objective about what they're seeing. A good litmus test of this is to look at their predictions and see how they stack up to reality. Some predictions are just bad, some are so persistently awful that they indicate that the economist has incentives that lead them to tell flat out lies. The above graph is a good example of that.
sevenless 10y ago
Presumably they could've also gone back to a gold and silver standard. (This would be a terrible idea for other reasons, but it wouldn't inflate, right?)
- nradov 10y ago
  In principle a precious metal currency could inflate — if someone finds more gold and silver. There are semi-plausible proposals for asteroid mining.
- edko 10y ago
  Argentina did something similar in the 90s. Not with precious metals, but with a strong currency (the dollar). It did stop inflation, but, after a decade, it had to be abandoned, because it was too restrictive. Of course, if politicians would have been less corrupt, or better at making decisions, maybe it would have worked longer.
  - GFischer 10y ago
    Ecuador went one step ahead in 2000: https://en.wikipedia.org/wiki/Currency_substitution https://en.wikipedia.org/wiki/Currency_substitution I can't find non-biased studies, but I believe it was mostly positive: http://www.cato.org/blog/dollarization-hurting-ecuador-dont-believe-it http://www.cato.org/blog/dollarization-hurting-ecuador-dont-...
shambala 10y ago
Ridiculous. They should have dollarized the economy. It would have forced internal and external discipline on them.
- ufo 10y ago
  That is precisely what they did. 1 URV = 1 USD
  - sebastianconcpt 10y ago
    Yep. And Argentina did the same in the 90's and they made 1 Peso = 1 USD. And it stopped hyperinflation. What screwed up Argentina (big big time) was having state size go completely out of control and grow and grow until deficit couldn't be grown anymore and debt either. After that crisis (2001) 5 presidents in 1 week, currency devaluation and a populist new president took office, then his wife (the Kirchners) and they almost became what Venezuela is today.
RobertoG 10y ago
Narratives are powerful things. The article says: "And, basically, inflation did end, and the country's economy turned around. " This is Brazil GDP per capita: (1) It falls in 1992 (they forget to tell us that), exactly with the intervention that the article mentions. Then it goes up, then down and then kick off spectacularly in 2002 (the year that lefty Lula Da Silva wins the election, by the way) the article says: "Brazil became a major exporter, and 20 million people rose out of poverty." and finish with "Everybody was very happy." This is Brazil poverty headcount ratio: (2) We can see an amazing trend down from, again, 2002. Unfortunately I can't find the data from 1992 but that would be interesting in order to check the "everybody happy" thing. (1): https://www.google.es/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_pcap_cd&idim=country:BRA:CHN&hl=en&dl=en https://www.google.es/publicdata/explore?ds=d5bncppjof8f9_&m... (2): https://www.google.es/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_pcap_cd&idim=country:BRA:CHN&hl=en&dl=en#!ctype=l&strail=false&bcs=d&nselm=h&met_y=poverty_headcount_ratio_at_national_poverty_line&scale_y=lin&ind_y=false&rdim=region&idim=country:BRA:CHN&ifdim=region&tstart=999468000000&tend=1409695200000&hl=en_US&dl=en&ind=false https://www.google.es/publicdata/explore?ds=d5bncppjof8f9_&m...
- necessity 10y ago
  They are indeed, just as you try to attribute the rise in the GDP to the party that a few years later broke the country without changing its policies.
  - RobertoG 10y ago
    I didn't attribute anything. Only pointing how easy is to create the appearance of causality. Is Brazil broken? I didn't realize, let's check those graphs again. And, are not trying to attribute the current problems in the economy of Brazil to a party instead of the current world economy. But, I bet, you think that the previous boom have nothing to do with that party. That was only the world economy.
hiphipjorge 10y ago
Planet Money is definitely one of the best podcasts out there. Everyone should give them a listen!
hiphipjorge 10y ago
Planet Money is definitely one of the best podcasts out there. Everyone should give them a listen!
jomamaxx 10y ago
It's a really interesting piece because it shows how 'popular confidence' is a different thing than 'investor confidence'. That said, it would seem that this was not a 'fake currency' -rather the introduction of a more sound system that people actually did trust. In a way, simply implementing good financial policy. But the details of it are pretty neat :)
- SubiculumCode 10y ago
  I think public confidence is not as important as the denomination inwhich taxes must be payed...and inflation was happening because they had limited domestic production capacity and could not afford to buy foreign goods.
spynxic 10y ago
Anyone know what currency oil is traded in?
- woliveirajr 10y ago
  US$. Some countries (Iran) want to change to euros. [1] [1] http://www.globalresearch.ca/currency-war-escalation-iran-wants-euros-instead-of-us-dollars-for-oil-payments/5506266 http://www.globalresearch.ca/currency-war-escalation-iran-wa...
  - cloakandswagger 10y ago
    Iraq was one of the first to start enacting plans for a Euro-oil exchange. That was shortly before the US went to war with them. Come to think of it, Libya was in the process of creating a gold-backed currency when the US went to war with them! Hm...
leovonl 10y ago
Sorry, but this story gets nowhere near the real reasons for the inflation reduction. The major and most important change on the Brazilian government to achieve this was the LRF - Lei da Responsabilidade Fiscal, "Fiscal Responsibility Law" in English (free translation). With these law, federal, state and municipal governments, which added much more oversight and control to public spending, requiring budget increases to go through congress, forbidding "money printing" practices and also requiring detailed accounting records to be submitted to a branch of the judiciary (TCU) for approval. I could go on and write a huge document here, there's a lot of historical questions involved too. If anyone is interested in more details please let me know.
- ufo 10y ago
  Pretty much. What the URV system did was get rid of the "inertial" inflation that was left over after they finally managed to get the government accounts in order.
- Toidiu 10y ago
  Yes there were policies that augmented the recovery but the article hits upon a key point: you need the people of a government to trust the government for it to succeed. The entire economic system is based upon trust. Trust that you can pay back a debt, you can take out a loan, you will get paid and the money will hold its value, the government will honor and stand behind it currency. This trust is lost when a government defaults on its debt, which was the case in Brazil and much of South America. The real created an illusion of trust by listing prices in a phantom currency.
  - SubiculumCode 10y ago
    To a certain extent I disagree. As long as you have to pay your taxes in the sovereign's currency, and failure to pay those taxes has real consequences, there will be demand for that currency...
    - redblacktree 10y ago
      In what way do you disagree?
necessity 10y ago
Next in HN: "Amazing! Scientists cure cancer with natural juice!"
vegabook 10y ago
How is this "fake money" more fake than the fiat currencies we use every single day, everywhere? It always simply comes down to the credibility of the issuance rules and the issuing entity.
hudell 10y ago
I remember thinking as a kid: "It's been a while since we last changed currencies". And also wondering how long the USA were using dollars and things like that. Took me some time to realize that changing currency is not something that countries do every other year.
joeblau 10y ago
I lived in Brazil from 1989 to 1992 and while I was there, the money changed 3 times (I think cruzero, cruzado, cruzado novo). I was just a kid but I remember the price of drinks at the local shopping strip raising extremely quickly. I really think the mind game to trick the economy into a stable currency was amazing.
fiatjaf 10y ago
This stupid article gets posted here every year. It's a lie.
squozzer 10y ago
So if they try this in the US, I hope they call the new currency the clam. Or maybe the sur-real. <rim shot>

162 points by mrb 10y ago

Previous discussion: https://news.ycombinator.com/item?id=9617710 https://news.ycombinator.com/item?id=9617710

This economic plan - pegging to the US dollar - led to large current account deficits. The only reason why this "worked" was because following the plan imposed by foreign investors (i.e. the IMF) meant that they could secure foreign currency. This still meant that they were basically swapping hyperinflation for racking up a huge external debt instead, and they were essentially more dependent upon foreign investors. The fact that this 'worked' and didn't lead to disaster was probably due to the fact that oil prices kept creeping up. Currency pegging was used in Venezuela too and that story ended in disaster. In terms of poverty reduction, Lula's Bolsa Familia program was more effective than this at actually helping people, but foreign investors love the story about how "Brazil was made safe again for foreign investors".

whack 10y ago
Any time you have an entity that's low on capital but high in potential, it's bound to attract outside investors, which is in turn bound to produce current account deficits. This isn't necessarily a bad thing. Having outside investors provide the capital needed to ramp up your operations, can be a huge win-win for both sides. In fact, this is exactly how most successful startups got to where they are today. In contrast, I can't think of a single country with hyper-inflation that had a successful economy.
- crdoconnor 10y ago
  >Any time you have an entity that's low on capital but high in potential, it's bound to attract outside investors, which is in turn bound to produce current account deficits. This isn't necessarily a bad thing. Taking on large foreign debts has pretty much led to disaster everywhere from Greece to Thailand to Zimbabwe. Where it's "worked out", it's usually been a way for foreign investors to extract wealth from a country's natural resources. Any time anybody tells you that the best way to grow a business is to rack up lots of credit card debt, run. >Having outside investors provide the capital needed to ramp up your operations, can be a huge win-win for both sides. You have to make sure that the outside investors are put on a leash (as they are in China). If you don't, you end up bringing in lots of capital causing a spike of growth for a while, destroying local businesses (who can't compete with foreign businesses) and then when it ends the economy craters and inflation spikes once again. >In contrast, I can't think of a single country with hyper-inflation that had a successful economy. I can't think of a single country with a successful economy that hasn't at hasn't taken the IMF's guidelines and done the exact opposite (contrast South Korea's relative success with Thailand's).
hga 10y ago
Currency pegging was used in Venezuela too and that story ended in disaster. Which period are you referring to? Venezuela's biggest problem right now, besides the drought which has hit their electrical supply, is that the government looted the oil industry instead of maintaining it and taking a sustainable vig from it. I haven't looked at the numbers (but see e.g. this production chart: http://www.tradingeconomics.com/venezuela/crude-oil-production http://www.tradingeconomics.com/venezuela/crude-oil-producti...), but as I understand it the lower oil prices are secondary to this, although if they'd maintained, let alone expanded production, I suppose the prices would be even lower....
digi_owl 10y ago
Yeah i found that line about them becoming a big exporter right after the URV was introduced more interesting than trying to get people to think in static URVs than inflating Reals. And the moment i read "Catholic university" i found myself thinking about the Chicago Boys. https://en.wikipedia.org/wiki/Chicago_Boys https://en.wikipedia.org/wiki/Chicago_Boys
jomamaxx 10y ago
"This still meant that they were basically swapping hyperinflation for racking up a huge external debt instead" This is extremely misleading. There is absolutely no need for a country to be borrowing at such large rages. Your statement seems to imply that countries should get money for free from outside entities. Yes - if your finances are a mess - you're going to have crazy books - hyperinflation or massive debt - pick your poison. The 'fix' is not to change the numbers around, it's to solve the underlying fiscal and investment problems.
neves 10y ago
Yes, you are right. URV was a nice hack, but people overestimate its economic brilliance. To confirm that it was something imposed by foreigners, you just have to take a look at the dates when the Latin America hyperinflation ended in each country: Mar. 1990 Brazil Mar. 1990 Argentina Aug. 1990 Peru Mar. 1991 Nicaragua You can see a compiled hyperinflation rates in a table in this paper: http://object.cato.org/sites/cato.org/files/pubs/pdf/workingpaper-8.pdf http://object.cato.org/sites/cato.org/files/pubs/pdf/working... Till today Brazil suffers with a overvalued money. The medium class loves it, because they can travel abroad cheaply and buy imported goods. You should take a look at this Wikipedia page: https://en.wikipedia.org/wiki/Washington_Consensus https://en.wikipedia.org/wiki/Washington_Consensus
- icebraining 10y ago
  The medium class loves it, because they can (...) buy imported goods. Doesn't Brasil have an import tax of 60%?
rmsaksida 10y ago
> The only reason why this "worked" was because following the plan imposed by foreign investors (i.e. the IMF) meant that they could secure foreign currency. Well, yes, that was the idea. > This still meant that they were basically swapping hyperinflation for racking up a huge external debt instead, and they were essentially more dependent upon foreign investors. The fact that this 'worked' and didn't lead to disaster was probably due to the fact that oil prices kept creeping up. Currency pegging was used in Venezuela too and that story ended in disaster. An external debt that was payable and negotiable. And that we were able to pay successfully (though now we have a large internal debt). In any case, having an external debt is not the end of the world. How many countries do it? > Currency pegging was used in Venezuela too and that story ended in disaster Right. That was the reason of Venezuela's disaster... > In terms of poverty reduction, Lula's Bolsa Familia program was more effective than this at actually helping people, but foreign investors love the story about how "Brazil was made safe again for foreign investors". Do you have any idea how destructive inflation is to a poor household? I'm sorry, this is ridiculous. And what does Bolsa Família - a program that was actually a merge of several programs from FHC's previous administration, modeled by Ricardo Paes de Barros around Friedman's negative income tax - have to do with this?

nishnik 10y ago

How did it work?

woliveirajr 10y ago
People were used to inflation, and prices would go up as a regular practice. Indexing prices using URV, all prices would increase in a regular pace, all prices together, and inflationary pressure would lose the irregularity (no more uneven increases, that anyone would compensate in the next step). After a while, just rename this fake money to "real", and you have Brazil with its long-surviving money.

whack 10y ago

It's saddening the number of national economies that have been destroyed by politicians who don't understand economic fundamentals. When it comes to most matters like the military for the example, we trust our generals to organise and manage the Armed Forces as per their best judgement. And yet, when it comes to economic policy, we persist in thinking that it should be implemented by career politicians and popular opinion. As long as that doesn't change, I think we're doomed to see endless repeats of such rookie mistakes.

crdoconnor 10y ago
>we persist in thinking that it should be implemented by career politicians and popular opinion. This is what economists do when they think we're not paying attention: http://z822j1x8tde3wuovlgo7ue15.wpengine.netdna-cdn.com/wp-content/uploads/2012/11/greece.png http://z822j1x8tde3wuovlgo7ue15.wpengine.netdna-cdn.com/wp-c... That's not "oops". That's not giving two shits about being right because being right doesn't pay the bills. Being wrong does. If you want to see economic destruction on a wide scale, don't listen to the anti-austerity protests. Don't listen to "populist" politicians. Listen to the 'respectable' economists who have an eye on a well paid job at a corporate think tank like CATO. They truly have nothing but objectivity and your best interests at heart.
- at-fates-hands 10y ago
  >> Listen to the 'respectable' economists Isn't that kind of a subjective opinion? Liberals love to push Keynes economic theories and hold him up as some kind of expert. Likewise, Conservatives love to push Friedman's theories on the economy since it fits with their staunch free market ideas. Even in these circles it would be hard to find someone who's actually objective about what they're seeing.
  - crdoconnor 10y ago
    >Isn't that kind of a subjective opinion? I wasn't using it as such. If an economist gets the ear of a president, is employed by the ECB (as the above economists were) or a column in the New York Times they're 'respectable'. >Liberals love to push Keynes economic theories and hold him up as some kind of expert. Conservatives use his theories too. Republican politicians who fight tooth and nail for military spending in their districts know exactly what they're doing and why. >Even in these circles it would be hard to find someone who's actually objective about what they're seeing. A good litmus test of this is to look at their predictions and see how they stack up to reality. Some predictions are just bad, some are so persistently awful that they indicate that the economist has incentives that lead them to tell flat out lies. The above graph is a good example of that.

sevenless 10y ago

Presumably they could've also gone back to a gold and silver standard. (This would be a terrible idea for other reasons, but it wouldn't inflate, right?)

nradov 10y ago
In principle a precious metal currency could inflate — if someone finds more gold and silver. There are semi-plausible proposals for asteroid mining.
edko 10y ago
Argentina did something similar in the 90s. Not with precious metals, but with a strong currency (the dollar). It did stop inflation, but, after a decade, it had to be abandoned, because it was too restrictive. Of course, if politicians would have been less corrupt, or better at making decisions, maybe it would have worked longer.
- GFischer 10y ago
  Ecuador went one step ahead in 2000: https://en.wikipedia.org/wiki/Currency_substitution https://en.wikipedia.org/wiki/Currency_substitution I can't find non-biased studies, but I believe it was mostly positive: http://www.cato.org/blog/dollarization-hurting-ecuador-dont-believe-it http://www.cato.org/blog/dollarization-hurting-ecuador-dont-...

shambala 10y ago

Ridiculous. They should have dollarized the economy. It would have forced internal and external discipline on them.

ufo 10y ago
That is precisely what they did. 1 URV = 1 USD
- sebastianconcpt 10y ago
  Yep. And Argentina did the same in the 90's and they made 1 Peso = 1 USD. And it stopped hyperinflation. What screwed up Argentina (big big time) was having state size go completely out of control and grow and grow until deficit couldn't be grown anymore and debt either. After that crisis (2001) 5 presidents in 1 week, currency devaluation and a populist new president took office, then his wife (the Kirchners) and they almost became what Venezuela is today.

RobertoG 10y ago

Narratives are powerful things. The article says: "And, basically, inflation did end, and the country's economy turned around. " This is Brazil GDP per capita: (1) It falls in 1992 (they forget to tell us that), exactly with the intervention that the article mentions. Then it goes up, then down and then kick off spectacularly in 2002 (the year that lefty Lula Da Silva wins the election, by the way) the article says: "Brazil became a major exporter, and 20 million people rose out of poverty." and finish with "Everybody was very happy." This is Brazil poverty headcount ratio: (2) We can see an amazing trend down from, again, 2002. Unfortunately I can't find the data from 1992 but that would be interesting in order to check the "everybody happy" thing. (1): https://www.google.es/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_pcap_cd&idim=country:BRA:CHN&hl=en&dl=en https://www.google.es/publicdata/explore?ds=d5bncppjof8f9_&m... (2): https://www.google.es/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_pcap_cd&idim=country:BRA:CHN&hl=en&dl=en#!ctype=l&strail=false&bcs=d&nselm=h&met_y=poverty_headcount_ratio_at_national_poverty_line&scale_y=lin&ind_y=false&rdim=region&idim=country:BRA:CHN&ifdim=region&tstart=999468000000&tend=1409695200000&hl=en_US&dl=en&ind=false https://www.google.es/publicdata/explore?ds=d5bncppjof8f9_&m...

necessity 10y ago
They are indeed, just as you try to attribute the rise in the GDP to the party that a few years later broke the country without changing its policies.
- RobertoG 10y ago
  I didn't attribute anything. Only pointing how easy is to create the appearance of causality. Is Brazil broken? I didn't realize, let's check those graphs again. And, are not trying to attribute the current problems in the economy of Brazil to a party instead of the current world economy. But, I bet, you think that the previous boom have nothing to do with that party. That was only the world economy.

hiphipjorge 10y ago

Planet Money is definitely one of the best podcasts out there. Everyone should give them a listen!

hiphipjorge 10y ago

Planet Money is definitely one of the best podcasts out there. Everyone should give them a listen!

jomamaxx 10y ago

It's a really interesting piece because it shows how 'popular confidence' is a different thing than 'investor confidence'. That said, it would seem that this was not a 'fake currency' -rather the introduction of a more sound system that people actually did trust. In a way, simply implementing good financial policy. But the details of it are pretty neat :)

SubiculumCode 10y ago
I think public confidence is not as important as the denomination inwhich taxes must be payed...and inflation was happening because they had limited domestic production capacity and could not afford to buy foreign goods.

spynxic 10y ago

Anyone know what currency oil is traded in?

woliveirajr 10y ago
US$. Some countries (Iran) want to change to euros. [1] [1] http://www.globalresearch.ca/currency-war-escalation-iran-wants-euros-instead-of-us-dollars-for-oil-payments/5506266 http://www.globalresearch.ca/currency-war-escalation-iran-wa...
- cloakandswagger 10y ago
  Iraq was one of the first to start enacting plans for a Euro-oil exchange. That was shortly before the US went to war with them. Come to think of it, Libya was in the process of creating a gold-backed currency when the US went to war with them! Hm...

leovonl 10y ago

Sorry, but this story gets nowhere near the real reasons for the inflation reduction. The major and most important change on the Brazilian government to achieve this was the LRF - Lei da Responsabilidade Fiscal, "Fiscal Responsibility Law" in English (free translation). With these law, federal, state and municipal governments, which added much more oversight and control to public spending, requiring budget increases to go through congress, forbidding "money printing" practices and also requiring detailed accounting records to be submitted to a branch of the judiciary (TCU) for approval. I could go on and write a huge document here, there's a lot of historical questions involved too. If anyone is interested in more details please let me know.

ufo 10y ago
Pretty much. What the URV system did was get rid of the "inertial" inflation that was left over after they finally managed to get the government accounts in order.
Toidiu 10y ago
Yes there were policies that augmented the recovery but the article hits upon a key point: you need the people of a government to trust the government for it to succeed. The entire economic system is based upon trust. Trust that you can pay back a debt, you can take out a loan, you will get paid and the money will hold its value, the government will honor and stand behind it currency. This trust is lost when a government defaults on its debt, which was the case in Brazil and much of South America. The real created an illusion of trust by listing prices in a phantom currency.
- SubiculumCode 10y ago
  To a certain extent I disagree. As long as you have to pay your taxes in the sovereign's currency, and failure to pay those taxes has real consequences, there will be demand for that currency...
  - redblacktree 10y ago
    In what way do you disagree?

necessity 10y ago

Next in HN: "Amazing! Scientists cure cancer with natural juice!"

vegabook 10y ago

How is this "fake money" more fake than the fiat currencies we use every single day, everywhere? It always simply comes down to the credibility of the issuance rules and the issuing entity.

hudell 10y ago

I remember thinking as a kid: "It's been a while since we last changed currencies". And also wondering how long the USA were using dollars and things like that. Took me some time to realize that changing currency is not something that countries do every other year.

joeblau 10y ago

I lived in Brazil from 1989 to 1992 and while I was there, the money changed 3 times (I think cruzero, cruzado, cruzado novo). I was just a kid but I remember the price of drinks at the local shopping strip raising extremely quickly. I really think the mind game to trick the economy into a stable currency was amazing.

fiatjaf 10y ago

This stupid article gets posted here every year. It's a lie.

squozzer 10y ago

So if they try this in the US, I hope they call the new currency the clam. Or maybe the sur-real. <rim shot>