12 ms·

How Fake Money Saved Brazil (2010)

111 points by fossuser 5y ago

schoen 5y ago
(2010)
schoen 5y ago
More about this history: https://en.wikipedia.org/wiki/Unidade_real_de_valor https://en.wikipedia.org/wiki/Unidade_real_de_valor https://en.wikipedia.org/wiki/Plano_Real https://en.wikipedia.org/wiki/Plano_Real A subtlety about the name is that "real" in Portuguese has two different meanings with two different etymologies: 'real, genuine' from Latin realis (res + -alis) 'pertaining to a thing', and 'royal' from Latin regalis (rex + -alis) 'pertaining to a king'. Portuguese often loses historical intervocalic consonants (the word for consonant itself is "consoante"!), so the words corresponding to English "real" and "regal" are the same in Portuguese. https://en.wiktionary.org/wiki/real#Portuguese https://en.wiktionary.org/wiki/real#Portuguese My current understanding is that the use of this name for the currency was an intentional pun: there was a Portuguese currency with this name (https://en.wikipedia.org/wiki/Portuguese_real https://en.wikipedia.org/wiki/Portuguese_real) where it was interpreted, and meant to be interpreted, entirely as royal (it was issued only under the Portuguese monarchy), while the URV explicitly intended people to think of the real, genuine interpretation of the name.
- smallnamespace 5y ago
  If you're in the Bay Area, El Camino Real is literally 'The Royal Road', i.e. the King's Highway (Spanish went through a similar process as Portuguese). Also, English 'regal' and 'royal' are both cognate to Spanish/Portuguese 'real', borrowed once from Latin and again from French. We don't just borrow words; on occasion, English has pursued other languages down alleyways to beat them unconscious and rifle their pockets for new vocabulary.
  - noneeeed 5y ago
    My favourite example of a word that has entered English is "loot", which derives from the Hindi word "lūṭ", and was bought back by members of the British East India Company during the early years of them doing exactly that to India. It just so perfectly encapsulates the empire.
- anm89 5y ago
  I never understood what the intent was here. That is really fascinating!
- hnedeotes 5y ago
  As a bit of interesting trivia, Portugal's monetary unit before the Euro was the "Escudo", which literally means "Shield".
  - ithkuil 5y ago
    Many medieval are called "shields" (ecú, scudo, ...) bacause they are marked with the noble coat of arms of who issues them. The coat of arms is rendered primarily in shields and shields are ore often featured directly in the coins
    - hnedeotes 5y ago
      Yeah I can see the association with the coat of arms - not like I had a great understanding of the currency naming or anything but went to check since I knew "escudo" had to have been in use after the implementation of the republic (which dethroned the royal house) - and in fact they substituted the "real" by the "escudo". It's a fun take having it named directly as "shield", since the ability to control the money production can be seen as a weapon/defence.
- brabel 5y ago
  There was a long history of using "réis" as the currency (since the 16th century)... which was only replaced by the cruzeiro in the 1940's, then cruzado for a short time, and then finally the temporary URV and the more permanent real... see how they like to play with the words? Réis is just an inflection for reais (plural of real, meaning royal in this context, as far as I know) as they explain in this article in Portuguese (which seems to freely exchange reais and réis - e.g. it says the currency was called real in 1833, but the printed notes say réis up to the 1942 ones): https://vejasp.abril.com.br/blog/memoria/evolucao-moeda-brasileira/ https://vejasp.abril.com.br/blog/memoria/evolucao-moeda-bras... rél/réis -> cruzeiro(s) -> cruzeiro(s) novo(s) -> cruzeiro(s) -> cruzado(s) -> cruzado(s) novo(s) -> cruzeiro (again!!) -> cruzeiro(s) real(s) -> real/reais Source: https://www.britannica.com/topic/real-Brazilian-currency https://www.britannica.com/topic/real-Brazilian-currency I don't know why they changed the historical name of the currency from réis to reais (some old people still say réis, and contos(s), which a long time ago meant a thousand-thousand réis because a thousand réis was 1 réis of the older Portugues money - hence why you'll hear a lot of older people actually use the term merréis (which is a conjunction of mil (thousand) and réis!) but I guess that was just a play of words, like cruzado and cruzeiro which are also similar?!
  - schoen 5y ago
    I always thought the cruzado and cruzeiro were references to the Southern Cross (Cruzeiro do Sul), but apparently at least the former wasn't intended that way because the cruzado was a currency unit in Portugal before the beginning of the Portuguese colonization of Brazil. https://en.wikipedia.org/wiki/Portuguese_real#Coins https://en.wikipedia.org/wiki/Portuguese_real#Coins
henvic 5y ago
I'm Brazilian. It was not fake money that "saved Brazil". It was reducing / stagnating inflation (temporarily). The fact that they changed the currency even made poor people who had savings in cash (awful idea!), poorer when they forgot to exchange it. By the way, I've recently posted this https://henvic.dev/posts/bitcoin/ https://henvic.dev/posts/bitcoin/ where in the inflation section I explain how, with time, government tried to change the term inflation (to what is essentially a market basket) so they could... make it even worse and get away with it.
- I_Byte 5y ago
  But if it wasn’t the fake money that allowed them to stagnate inflation then what did? As someone not very well versed on economics I find this whole thing interesting and would like to get a good picture of what actually happened. Edit - I just opened your website and I think I found a mistake. > Quantum Computers - It won't affect Bitcoin in either a positive or negative manner Bitcoin wallet addresses are based on the Ed25519 elliptic curve, and to my understanding, a quantum computer is able to break the current major forms of public cryptography that we use to date (RSA, EC). A quantum computer can be used to break wallets private keys and steal bitcoins. So a quantum computer would be pretty bad for Bitcoin in its current state.
  - mrnotcrazy 5y ago
    Isn't bitcoin still being developed? So can't they just update the cryptography when we get to that point? I guess I don't really how how much bitcoin can change over time
    - I_Byte 5y ago
      Bitcoin is still being developed yes. However, what are the chances that old stagnant wallets, like Satoshi’s, are moved to a new quantum proof wallet? Are we to trust whoever tries to move Satoshi’s fortune 30 years from now when all the old wallets are considered “broken”?
    - schoen 5y ago
kumarvvr 5y ago
This has always been my favorite event in economics. What they essentially managed was collective emotions of the masses. Once they successfully convinced the masses that everything was ok, all did go well.
- aphextron 5y ago
  >"What they essentially managed was collective emotions of the masses." i.e. economics
  - joshspankit 5y ago
    Hot take: Very similar to the 2008 recession. People stopped spending because they were worried about the recession, not the other way around. (Yes: more complicated than that, I’m only talking about the psychological effects to those people who were affected)
- matheusmoreira 5y ago
  They just created a new currency. Seems like a pretty standard solution when the previous one becomes hopelessly inflated to the point of uselessness. My parents remember at least 3 different currencies being used throughout their lives.
  - rglullis 5y ago
    Your first sentence contradicts the second.
    - matheusmoreira 5y ago
      How so?
      - rglullis 5y ago
        Because you can not dismiss the URV (and the Plano Real at large) as "just creating another currency". If URV was "just another currency", then it would have failed like all the previous attempts have. But Plano Real actually controlled inflation, de-indexed the economy and public debt, etc.
forgingahead 5y ago
Why is this written like a gossip-column rag? Is this just the style of this series of articles, or something else? This is separate from the content but it's hard to read with mental red flags popping up questioning everything in it given this style.
- smnrchrds 5y ago
  It's a podcast/radio show. You should listen to it. The text is secondary. I don't know how much attention, if any, it gets.
- schoen 5y ago
  I think it's a kind of journalism hack (not to be confused with hack journalism!) because people literally have a psychological impetus to gossip (at least, this is what I learned from Joseph Henrichs and Paul Bloom, who seem to explain gossip as helping communities enforce social norms). So if you have some seemingly juicy gossip about a historical figure, maybe people will feel unaccountably grateful to you or unaccountably eager to share with friends? https://en.wikipedia.org/wiki/Gossip#Evolutionary_view https://en.wikipedia.org/wiki/Gossip#Evolutionary_view
  - jamiek88 5y ago
    It’s a transcript, Dr Freud.
- mig39 5y ago
  It's a radio show and podcast. This is the transcript.
runawaybottle 5y ago
Anyone want to dig into why this worked? What stopped the other currency from inflating? All we’re told is that ‘they made everything cost 1 Bitcoin (or one ulv or some shit), and that unit never changed’. Okay. Why?
- vmception 5y ago
  I’m guessing the actual government had an issue with the prices of everything it wanted to buy also rising due to no market not trusting it with credit. If the market stopped dumping the currency and started bidding up the bonds. Then the temporary disruption in high interest rates was enough for the government to get ahead on payments. Just a guess. Would like more source on what happened.
- justbored123 5y ago
  We saw this phenomenon in Argentina. It's called "inflationary inertia". Basically, the government prints money creating inflation in the first place, so prices go up. But when you stop printing money, like Argentina did in 2016 and even reduced the money supply by 5%, inflation still goes up because everybody expects it to go up so they get ahead of it to avoid losing money, starting with the businessmen. Once the businessmen rise prices, everybody else in the economy does the same, and workers demand a pay raise to match inflation, etc. creating a vicious cycle so you have inflation regardless of the money you print or don't print. This technique seems to have stopped that cycle by changing the expectations of the people.
  - imtringued 5y ago
    It's more fun to print your way out of hyperinflation though. In theory printing money to support economic sectors that are suffering from shortages would lead to excess production and they would have a hard time getting rid of those products, which gives buyers a negotiating advantage which forces the seller to lower their prices despite hyperinflation.
- kqr 5y ago
  Inflation is caused by a decreased demand for money. When in normal times you go up to the grocer and say "can I have three eggs for this coin?" they go "sure, I like coins, that sounds like a fair deal." Under inflation they go "I don't want your coins" and if all you have are coins, and you need eggs, all you can say is "okay what about 10 of the coins? 100?" and this is how prices go up. Once people realises inflation is happening, that in and of itself will feed into a negative feedback loop and cause them to demand money less. When people want to get rid of their money as quickly as possible -- and no other people want to take on large amounts of money, liquidity drops and as always when that happens, prices rise. By visibly pegging the prices of things in a completely virtual measure of value, people's faith in the virtual measure of value was established, causing demand for things that could be exchanged for a fixed amount of the virtual measure of value. How can a powerful economic entity set a maximum price? By stubbornly offering to sell seemingly infinite quantities at that price, for example. That way, nobody will have any reason to offer it for sale at a higher price. Why couldn't they do this with the old currency? It depreciated too fast even for the government, due to the lost confidence in it. Maybe this is all obvious to you and I've been rambling for no good reason.
xaduha 5y ago
Russia had something similar at one point. https://ru.wikipedia.org/wiki/Условная_единица https://ru.wikipedia.org/wiki/Условная_единица No pages in other languages, basically prices were in USD due to inflation, but at some point it was forbidden to say that and to actually use dollars to trade, so people wrote у.е. instead. It even made it into some laws. Google translates it as Conventional Unit, but it doesn't really capture euphemistic nature of it though. There also was redenomination which chopped three zeroes off, I guess you can call it a new currency. > In September 1993, the Soviet ruble (code: SUR) was replaced with the Russian ruble (code: RUR) at the rate 1 SUR = 1 RUR. In 1998, preceding the financial crisis, the Russian ruble was redenominated with the new code "RUB" and was exchanged at the rate of 1,000 RUR = 1 RUB.
- photojosh 5y ago
  Ditto for Peru. They had the sol [0] (until 1985), then 1000 of those became the inti [1] (1985-91) and then a million of those became the nuevo (new) sol [2] in 1991. But through the whole time, anyone with the means would be using USD if they wanted to hold cash. [0] https://en.wikipedia.org/wiki/Peruvian_sol_(1863%E2%80%931985) https://en.wikipedia.org/wiki/Peruvian_sol_(1863%E2%80%93198... [1] https://en.wikipedia.org/wiki/Peruvian_inti https://en.wikipedia.org/wiki/Peruvian_inti [2] https://en.wikipedia.org/wiki/Peruvian_sol https://en.wikipedia.org/wiki/Peruvian_sol
ChrisArchitect 5y ago
Old discussion: 11 years ago https://news.ycombinator.com/item?id=1757716 https://news.ycombinator.com/item?id=1757716 6 years ago https://news.ycombinator.com/item?id=9617710 https://news.ycombinator.com/item?id=9617710 5 years ago https://news.ycombinator.com/item?id=12419117 https://news.ycombinator.com/item?id=12419117 Alot has happened in the Brazilian economy/to their people in the past decade or so. And they're having a hell of time with COVID.
mjevans 5y ago
As a thought experiment replace URV with [Unit of Minimum Wage] UMW. "But everything would be listed in URVs, the fake currency. Their wages would be listed in URVs. Taxes were in URVs. All prices were listed in URVs. And URVs were kept stable -- what changed was how many cruzeiros each URV was worth." 'Everything would be listed in UMWs, the fake currency. Their wages would be listed in UMWs. Taxes were in UMWs. All prices were listed in UMWs. And UMWs were kept stable -- what changed was how many dollars each UMW was worth.' So if the minimum wage was raised, but correspondingly taxes also went up, that would be (if based on a value tax) somewhat of a tax on the rich. However anyone who's wages didn't rise with the plan, as the middle class in the US currently experiences, is made correspondingly poorer; while the rich still benefit from being able to raise prices. That is the war on the middle class.
- jiofih 5y ago
  By your definition any kind of wealth transfer to the lower classes would be a “tax on the rich”. Funnily, it’s quite common in Brazil to refer to larger monetary values as “2.5 salaries”
  - mjevans 5y ago
    How the tax is structured and effectively applied greatly affects that. Taxes on "use", at least without specific exemptions or targets, are usually regressive. Everyone must buy food. Many need to use the roads to do things (like get to work), so gas taxes are regressive and tax non-property-owners who have little real choice or say about their destinations. If the rich were taxed properly, the effect would also be to tax the poor though all of the rent-seeking the rich have. If rent-seeking, instead, was broken then the poor might be unshackled and able to build wealth. ** Focus on the buying power ** rather than a minimum wage. Provide the basic needs for all to break the rent-seeking slide towards the monopoly of a few and allow communities to thrive.
ulzeraj 5y ago
There was a lot more to the Plano Real than just playing with currency units. This article doesn't take into account that a lot of austerity plans were implemented during that time. Government expenses were cut and a huge wave of privatization began. This included the Vale do Rio Doce mining company and state run communication companies like Telesp. There were also lots of local regional state banks. Local government used these banks to lend money to themselves. Privatizing those banks kept governors to print money out of tin air from their own regional banks.
- jiofih 5y ago
  Regional banks cannot “print money”, only the central bank. What happened is that the central bank would lend an “over” amount to counteract the daily inflation (which reached 4% at some point), just compounding the inflation. This would also be done to private banks. This has very little impact on the story though. It was done due to the crazy inflation, and extinguished when the currency started stabilizing. Eliminating the practice alone would have no effect. There is no alternate theory. The Real really did save the day. There was a lot of cleaning up afterwards but none would have been possible without it. I suggest double checking your sources and pro-privatization stance with care.
  - ulzeraj 5y ago
    Any bank can create money by lending fractionally reserves. The fact that governors used their regional state run banks to lend to themselves to cover for their bad austerity policies was one of the main reasons for the 80s and 90s brazilian inflation problem. > I suggest double checking your sources and pro-privatization stance with care. I don't remember saying that I have a pro-privatization stance. I just wrote that they happened. Your sentence suggest that you are inconvenienced by that therefore you are the one has a "stance" on the matter.
    - jiofih 5y ago
      They have a fixed reserve ratio, so they can’t “create money” unless more deposits come in. Can you point me to a source supporting that idea that lending from state banks was a main source of inflation?

111 points by fossuser 5y ago

(2010)

More about this history: https://en.wikipedia.org/wiki/Unidade_real_de_valor https://en.wikipedia.org/wiki/Unidade_real_de_valor https://en.wikipedia.org/wiki/Plano_Real https://en.wikipedia.org/wiki/Plano_Real A subtlety about the name is that "real" in Portuguese has two different meanings with two different etymologies: 'real, genuine' from Latin realis (res + -alis) 'pertaining to a thing', and 'royal' from Latin regalis (rex + -alis) 'pertaining to a king'. Portuguese often loses historical intervocalic consonants (the word for consonant itself is "consoante"!), so the words corresponding to English "real" and "regal" are the same in Portuguese. https://en.wiktionary.org/wiki/real#Portuguese https://en.wiktionary.org/wiki/real#Portuguese My current understanding is that the use of this name for the currency was an intentional pun: there was a Portuguese currency with this name (https://en.wikipedia.org/wiki/Portuguese_real https://en.wikipedia.org/wiki/Portuguese_real) where it was interpreted, and meant to be interpreted, entirely as royal (it was issued only under the Portuguese monarchy), while the URV explicitly intended people to think of the real, genuine interpretation of the name.

smallnamespace 5y ago
If you're in the Bay Area, El Camino Real is literally 'The Royal Road', i.e. the King's Highway (Spanish went through a similar process as Portuguese). Also, English 'regal' and 'royal' are both cognate to Spanish/Portuguese 'real', borrowed once from Latin and again from French. We don't just borrow words; on occasion, English has pursued other languages down alleyways to beat them unconscious and rifle their pockets for new vocabulary.
- noneeeed 5y ago
  My favourite example of a word that has entered English is "loot", which derives from the Hindi word "lūṭ", and was bought back by members of the British East India Company during the early years of them doing exactly that to India. It just so perfectly encapsulates the empire.
anm89 5y ago
I never understood what the intent was here. That is really fascinating!
hnedeotes 5y ago
As a bit of interesting trivia, Portugal's monetary unit before the Euro was the "Escudo", which literally means "Shield".
- ithkuil 5y ago
  Many medieval are called "shields" (ecú, scudo, ...) bacause they are marked with the noble coat of arms of who issues them. The coat of arms is rendered primarily in shields and shields are ore often featured directly in the coins
  - hnedeotes 5y ago
    Yeah I can see the association with the coat of arms - not like I had a great understanding of the currency naming or anything but went to check since I knew "escudo" had to have been in use after the implementation of the republic (which dethroned the royal house) - and in fact they substituted the "real" by the "escudo". It's a fun take having it named directly as "shield", since the ability to control the money production can be seen as a weapon/defence.
brabel 5y ago
There was a long history of using "réis" as the currency (since the 16th century)... which was only replaced by the cruzeiro in the 1940's, then cruzado for a short time, and then finally the temporary URV and the more permanent real... see how they like to play with the words? Réis is just an inflection for reais (plural of real, meaning royal in this context, as far as I know) as they explain in this article in Portuguese (which seems to freely exchange reais and réis - e.g. it says the currency was called real in 1833, but the printed notes say réis up to the 1942 ones): https://vejasp.abril.com.br/blog/memoria/evolucao-moeda-brasileira/ https://vejasp.abril.com.br/blog/memoria/evolucao-moeda-bras... rél/réis -> cruzeiro(s) -> cruzeiro(s) novo(s) -> cruzeiro(s) -> cruzado(s) -> cruzado(s) novo(s) -> cruzeiro (again!!) -> cruzeiro(s) real(s) -> real/reais Source: https://www.britannica.com/topic/real-Brazilian-currency https://www.britannica.com/topic/real-Brazilian-currency I don't know why they changed the historical name of the currency from réis to reais (some old people still say réis, and contos(s), which a long time ago meant a thousand-thousand réis because a thousand réis was 1 réis of the older Portugues money - hence why you'll hear a lot of older people actually use the term merréis (which is a conjunction of mil (thousand) and réis!) but I guess that was just a play of words, like cruzado and cruzeiro which are also similar?!
- schoen 5y ago
  I always thought the cruzado and cruzeiro were references to the Southern Cross (Cruzeiro do Sul), but apparently at least the former wasn't intended that way because the cruzado was a currency unit in Portugal before the beginning of the Portuguese colonization of Brazil. https://en.wikipedia.org/wiki/Portuguese_real#Coins https://en.wikipedia.org/wiki/Portuguese_real#Coins

henvic 5y ago

I'm Brazilian. It was not fake money that "saved Brazil". It was reducing / stagnating inflation (temporarily). The fact that they changed the currency even made poor people who had savings in cash (awful idea!), poorer when they forgot to exchange it. By the way, I've recently posted this https://henvic.dev/posts/bitcoin/ https://henvic.dev/posts/bitcoin/ where in the inflation section I explain how, with time, government tried to change the term inflation (to what is essentially a market basket) so they could... make it even worse and get away with it.

I_Byte 5y ago
But if it wasn’t the fake money that allowed them to stagnate inflation then what did? As someone not very well versed on economics I find this whole thing interesting and would like to get a good picture of what actually happened. Edit - I just opened your website and I think I found a mistake. > Quantum Computers - It won't affect Bitcoin in either a positive or negative manner Bitcoin wallet addresses are based on the Ed25519 elliptic curve, and to my understanding, a quantum computer is able to break the current major forms of public cryptography that we use to date (RSA, EC). A quantum computer can be used to break wallets private keys and steal bitcoins. So a quantum computer would be pretty bad for Bitcoin in its current state.
- mrnotcrazy 5y ago
  Isn't bitcoin still being developed? So can't they just update the cryptography when we get to that point? I guess I don't really how how much bitcoin can change over time
  - I_Byte 5y ago
    Bitcoin is still being developed yes. However, what are the chances that old stagnant wallets, like Satoshi’s, are moved to a new quantum proof wallet? Are we to trust whoever tries to move Satoshi’s fortune 30 years from now when all the old wallets are considered “broken”?
  - schoen 5y ago

kumarvvr 5y ago

This has always been my favorite event in economics. What they essentially managed was collective emotions of the masses. Once they successfully convinced the masses that everything was ok, all did go well.

aphextron 5y ago
>"What they essentially managed was collective emotions of the masses." i.e. economics
- joshspankit 5y ago
  Hot take: Very similar to the 2008 recession. People stopped spending because they were worried about the recession, not the other way around. (Yes: more complicated than that, I’m only talking about the psychological effects to those people who were affected)
matheusmoreira 5y ago
They just created a new currency. Seems like a pretty standard solution when the previous one becomes hopelessly inflated to the point of uselessness. My parents remember at least 3 different currencies being used throughout their lives.
- rglullis 5y ago
  Your first sentence contradicts the second.
  - matheusmoreira 5y ago
    How so?
    - rglullis 5y ago
      Because you can not dismiss the URV (and the Plano Real at large) as "just creating another currency". If URV was "just another currency", then it would have failed like all the previous attempts have. But Plano Real actually controlled inflation, de-indexed the economy and public debt, etc.

forgingahead 5y ago

Why is this written like a gossip-column rag? Is this just the style of this series of articles, or something else? This is separate from the content but it's hard to read with mental red flags popping up questioning everything in it given this style.

smnrchrds 5y ago
It's a podcast/radio show. You should listen to it. The text is secondary. I don't know how much attention, if any, it gets.
schoen 5y ago
I think it's a kind of journalism hack (not to be confused with hack journalism!) because people literally have a psychological impetus to gossip (at least, this is what I learned from Joseph Henrichs and Paul Bloom, who seem to explain gossip as helping communities enforce social norms). So if you have some seemingly juicy gossip about a historical figure, maybe people will feel unaccountably grateful to you or unaccountably eager to share with friends? https://en.wikipedia.org/wiki/Gossip#Evolutionary_view https://en.wikipedia.org/wiki/Gossip#Evolutionary_view
- jamiek88 5y ago
  It’s a transcript, Dr Freud.
mig39 5y ago
It's a radio show and podcast. This is the transcript.

runawaybottle 5y ago

Anyone want to dig into why this worked? What stopped the other currency from inflating? All we’re told is that ‘they made everything cost 1 Bitcoin (or one ulv or some shit), and that unit never changed’. Okay. Why?

vmception 5y ago
I’m guessing the actual government had an issue with the prices of everything it wanted to buy also rising due to no market not trusting it with credit. If the market stopped dumping the currency and started bidding up the bonds. Then the temporary disruption in high interest rates was enough for the government to get ahead on payments. Just a guess. Would like more source on what happened.
justbored123 5y ago
We saw this phenomenon in Argentina. It's called "inflationary inertia". Basically, the government prints money creating inflation in the first place, so prices go up. But when you stop printing money, like Argentina did in 2016 and even reduced the money supply by 5%, inflation still goes up because everybody expects it to go up so they get ahead of it to avoid losing money, starting with the businessmen. Once the businessmen rise prices, everybody else in the economy does the same, and workers demand a pay raise to match inflation, etc. creating a vicious cycle so you have inflation regardless of the money you print or don't print. This technique seems to have stopped that cycle by changing the expectations of the people.
- imtringued 5y ago
  It's more fun to print your way out of hyperinflation though. In theory printing money to support economic sectors that are suffering from shortages would lead to excess production and they would have a hard time getting rid of those products, which gives buyers a negotiating advantage which forces the seller to lower their prices despite hyperinflation.
kqr 5y ago
Inflation is caused by a decreased demand for money. When in normal times you go up to the grocer and say "can I have three eggs for this coin?" they go "sure, I like coins, that sounds like a fair deal." Under inflation they go "I don't want your coins" and if all you have are coins, and you need eggs, all you can say is "okay what about 10 of the coins? 100?" and this is how prices go up. Once people realises inflation is happening, that in and of itself will feed into a negative feedback loop and cause them to demand money less. When people want to get rid of their money as quickly as possible -- and no other people want to take on large amounts of money, liquidity drops and as always when that happens, prices rise. By visibly pegging the prices of things in a completely virtual measure of value, people's faith in the virtual measure of value was established, causing demand for things that could be exchanged for a fixed amount of the virtual measure of value. How can a powerful economic entity set a maximum price? By stubbornly offering to sell seemingly infinite quantities at that price, for example. That way, nobody will have any reason to offer it for sale at a higher price. Why couldn't they do this with the old currency? It depreciated too fast even for the government, due to the lost confidence in it. Maybe this is all obvious to you and I've been rambling for no good reason.

xaduha 5y ago

Russia had something similar at one point. https://ru.wikipedia.org/wiki/Условная_единица https://ru.wikipedia.org/wiki/Условная_единица No pages in other languages, basically prices were in USD due to inflation, but at some point it was forbidden to say that and to actually use dollars to trade, so people wrote у.е. instead. It even made it into some laws. Google translates it as Conventional Unit, but it doesn't really capture euphemistic nature of it though. There also was redenomination which chopped three zeroes off, I guess you can call it a new currency. > In September 1993, the Soviet ruble (code: SUR) was replaced with the Russian ruble (code: RUR) at the rate 1 SUR = 1 RUR. In 1998, preceding the financial crisis, the Russian ruble was redenominated with the new code "RUB" and was exchanged at the rate of 1,000 RUR = 1 RUB.

photojosh 5y ago
Ditto for Peru. They had the sol [0] (until 1985), then 1000 of those became the inti [1] (1985-91) and then a million of those became the nuevo (new) sol [2] in 1991. But through the whole time, anyone with the means would be using USD if they wanted to hold cash. [0] https://en.wikipedia.org/wiki/Peruvian_sol_(1863%E2%80%931985) https://en.wikipedia.org/wiki/Peruvian_sol_(1863%E2%80%93198... [1] https://en.wikipedia.org/wiki/Peruvian_inti https://en.wikipedia.org/wiki/Peruvian_inti [2] https://en.wikipedia.org/wiki/Peruvian_sol https://en.wikipedia.org/wiki/Peruvian_sol

ChrisArchitect 5y ago

Old discussion: 11 years ago https://news.ycombinator.com/item?id=1757716 https://news.ycombinator.com/item?id=1757716 6 years ago https://news.ycombinator.com/item?id=9617710 https://news.ycombinator.com/item?id=9617710 5 years ago https://news.ycombinator.com/item?id=12419117 https://news.ycombinator.com/item?id=12419117 Alot has happened in the Brazilian economy/to their people in the past decade or so. And they're having a hell of time with COVID.

mjevans 5y ago

As a thought experiment replace URV with [Unit of Minimum Wage] UMW. "But everything would be listed in URVs, the fake currency. Their wages would be listed in URVs. Taxes were in URVs. All prices were listed in URVs. And URVs were kept stable -- what changed was how many cruzeiros each URV was worth." 'Everything would be listed in UMWs, the fake currency. Their wages would be listed in UMWs. Taxes were in UMWs. All prices were listed in UMWs. And UMWs were kept stable -- what changed was how many dollars each UMW was worth.' So if the minimum wage was raised, but correspondingly taxes also went up, that would be (if based on a value tax) somewhat of a tax on the rich. However anyone who's wages didn't rise with the plan, as the middle class in the US currently experiences, is made correspondingly poorer; while the rich still benefit from being able to raise prices. That is the war on the middle class.

jiofih 5y ago
By your definition any kind of wealth transfer to the lower classes would be a “tax on the rich”. Funnily, it’s quite common in Brazil to refer to larger monetary values as “2.5 salaries”
- mjevans 5y ago
  How the tax is structured and effectively applied greatly affects that. Taxes on "use", at least without specific exemptions or targets, are usually regressive. Everyone must buy food. Many need to use the roads to do things (like get to work), so gas taxes are regressive and tax non-property-owners who have little real choice or say about their destinations. If the rich were taxed properly, the effect would also be to tax the poor though all of the rent-seeking the rich have. If rent-seeking, instead, was broken then the poor might be unshackled and able to build wealth. ** Focus on the buying power ** rather than a minimum wage. Provide the basic needs for all to break the rent-seeking slide towards the monopoly of a few and allow communities to thrive.

ulzeraj 5y ago

There was a lot more to the Plano Real than just playing with currency units. This article doesn't take into account that a lot of austerity plans were implemented during that time. Government expenses were cut and a huge wave of privatization began. This included the Vale do Rio Doce mining company and state run communication companies like Telesp. There were also lots of local regional state banks. Local government used these banks to lend money to themselves. Privatizing those banks kept governors to print money out of tin air from their own regional banks.

jiofih 5y ago
Regional banks cannot “print money”, only the central bank. What happened is that the central bank would lend an “over” amount to counteract the daily inflation (which reached 4% at some point), just compounding the inflation. This would also be done to private banks. This has very little impact on the story though. It was done due to the crazy inflation, and extinguished when the currency started stabilizing. Eliminating the practice alone would have no effect. There is no alternate theory. The Real really did save the day. There was a lot of cleaning up afterwards but none would have been possible without it. I suggest double checking your sources and pro-privatization stance with care.
- ulzeraj 5y ago
  Any bank can create money by lending fractionally reserves. The fact that governors used their regional state run banks to lend to themselves to cover for their bad austerity policies was one of the main reasons for the 80s and 90s brazilian inflation problem. > I suggest double checking your sources and pro-privatization stance with care. I don't remember saying that I have a pro-privatization stance. I just wrote that they happened. Your sentence suggest that you are inconvenienced by that therefore you are the one has a "stance" on the matter.
  - jiofih 5y ago
    They have a fixed reserve ratio, so they can’t “create money” unless more deposits come in. Can you point me to a source supporting that idea that lending from state banks was a main source of inflation?