Exactly 20 years ago, on July 1, 1994, a new currency was brought into force in Brazil: the real, putting an end to the hyperinflation that had blighted the country in the previous 15 years. Official data report that, in the first semester of 1994 alone, inflation reached 757 percent, with a monthly average of 43 percent. In the following semester, after the Plano Real had been initiated, inflation plummeted to 18.6 percent—2.9 percent per month. 

At first, the key to taming the inflation was the implementation of the Unidade Real de Valor (“URV”, real unity of value, in a literal English translation), which lasted for no longer than four months, from March to June, 1994. One URV was worth 2,750 cruzeiros reais, the currency in effect until June 30. Referred to as a quasi-currency, the URV functioned as an exchange unit, bringing prices in line with an average inflation index in use during the period. 

Since one URV was worth $1, the URV, in practice, promoted the dollarization of the economy without the abolishment of the national currency. This strategy standardized all changes in price, currency exchange and salaries, with no connection with the currency in effect until then, the cruzeiro real, with no need for price freezes or lists, as had been the case with previous economic plans. And so the real became another currency that started its history worth one dollar.

Stages

In reality, the Plano Real started its development process in August, 1993, when then Finance Minister Fernando Henrique Cardoso cut three zeros off the currency in effect, the cruzeiro, and launched a new one: the cruzeiro real. At the occasion, the creation of the real had already been decided upon, in spite of its details only having been disclosed in March, 1994, when the URV was put into force.

The plan was implemented in two stages in order to make the transition between the cruzeiro real and the real possible, with the URV as its first step. The launch of the new currency, on July 1, 1994, marked the beginning of the second stage. From then on, high interest rates and a cheap dollar, along with remarkably steady exchange rates, became the government’s most powerful tools for curbing the inflation. But it was only in 1999, after the crisis in Russia, that the Brazilian government adopted the economic model in the three pillars that stand to this day: the primary surplus (fiscal effort), free exchange and inflation targets.

One of the economists who developed the Plano Real, Edmar Macha, believes that transparency was crucial for the plan’s success. “All previous plans were formulated secretly. The real was created before the eyes of the population, in stages, with prior approval from the National Congress,” he said.