The Real Stabilization Plan of Brazil

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Brazil faced many struggles with its currency throughout the last half century, eventually changing its currency five times before reaching what most would argue was their best stabilization plan. The stabilization plan that Brazil concluded with and is currently practicing is known as the Real. Each of the five currencies mentioned lasted at most three years, however since the creation of the Real Plan, the Real has been used for over twenty years. Compared to each of its predecessors, the Real Plan can easily be considered the most successful strategy followed by the Brasilian government. The Real was mainly able to achieve its fame by being able to keep inflation rates stabilized and lower over the past twenty years.

What exactly was the Real Plan? The Real Plan was essentially a framework created and implented by Itamar Franco and Fernando Henrique Cardoso. According to Filho, Franco and Cardoso determined that Brazil’s economic issues lied with its inflation rate. Therefore, they set forth to create a policy where they could stabilize and control the inflation rate, the aftermath was known as the Real Plan. As Filho puts it, this was possible by following three steps: first off they had to adjust the short-term fiscal deficit, then monetary authorities had to introduce a price index to stabilize the economy, and finally the real would be introduced as legal tender. Unlike the other stabilization plans, what made the Real different, were the steps used in introducing this new plan. Cardoso and Franco saw the issues of bringing about a new currency into the Brasilian economy, and therefore they preemptively created these three steps in order to make the plan successful. The results of the steps linked to eachother and allow...

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