Brazilian Real (BRL) Currency

Since it was established as an independent nation in 1822, Brazil has had at least seven different currencies and 12 different currency regimens.

Brazil's present currency, the real, was launched in 1994. It marked a return to the denomination of the country's original currency, also known as the real. Brazil's other currencies over the years, starting from 1833, were the Mil Reis, the Cruzeiro, the Cruzeiro Novo, the Cruzado, the Cruzado Novo and the Cruzeiro real.

The real is symbolised by R$ and has a currency code of BRL. In the plural, reals are called "reais" in Brazilian Portuguese. There is currently R$212 billion in circulation. A volume of approximately US$20 billion is traded daily (US$5 trillion annually) on Brazil's foreign exchange market including spot and futures trade.

The currency is regulated by the Brazilian Central Bank. A single real is currently issued as a coin, and the currency has banknotes of R$2, R$5, R$10, R$20, R$50 and R$100. The banknotes feature images of the "effigy of the republic" on one side and Brazilian fauna on the other.[2]

The History Of The Brazilian Real: A Legacy And A Fresh Start

The original currency name was given by the Portuguese crown when Brazil was founded as a Portuguese colony in 1500. Brazil's currency was traditionally linked to the gold standard, until 1971 when that system was abandoned around the globe.

The real in its current form has a special symbolic status as its launch came only a few years after Brazil re-established a democratic form government following a two-decade military regime in the 1960s and 70s. This coincided with efforts to maintain currency stability amid an extended period of hyperinflation.

Following the end of the military government in 1985, the country underwent a period of political renewal and economic uncertainty as it struggled to pay off international obligations accrued over previous decades. In February 1987, president José Sarney's government announced that it would default on interest payments on the country's US$103 billion in foreign debt. In the period ahead of introduction of the real, its inflation reached rates of as much as 1,000% annually.

After the 1989 return to full democracy with the election of Fernando Collor as president, the country's government struggled with the legacy of economic chaos left by the military and transitional government. The efforts to stabilise the economy included opening it to greater foreign trade and investment. There was also a controversial plan to temporarily confiscate a portion of the population's savings to help cover for budget shortfalls.

Collor was impeached in 1992 following dissatisfaction with the savings confiscation, ongoing economic instability and an alleged electoral scandal. The initiative to launch a new currency was formulated in 1993 during the government of his successor, president Itamar Franco.

Other attempts to stabilise the country's currencies in previous years failed, and they were mostly based on price freezes and large scale federal budget adjustments.

Because of an entrenched culture of inflation and price indexing in the economy, the creation of the new currency required a complex architecture involving the development of a type of "shadow currency," the URV (Unit of Real Value). It was meant to aid the transition from the discredited and highly depreciated cruzeiro-real to the the new currency, the real.

The transition was formulated under the supervision of Franco's finance minister, Fernando Henrique Cardoso, and economists on Cardoso's staff, including Pérsio Arida, Edmar Bacha, André Lara Resende and Pedro Malan.

The real was introduced on July 1, 2004. Under the arrangement, the URV was set at 2750 cruzeiro reals, which was the exchange rate for the dollar on the day of the real's introduction. The real was defined as equal to one URV. While prices of goods and services continued to be marked up daily, consumers and businesses were encouraged to compare them to prices referenced in URVs, which held relatively stable. That mechanism gave the population a way to determine a reasonable value to pay for their purchases amid a still unstable price environment. Shortly after its introduction, the real strengthened to as high as BRL0.84 per dollar amid renewed investor confidence and dollar inflows into the economy.

The Struggle To Maintain Stability

Following the launch of the real, the currency faced successive tests with the onset of the Mexican currency crisis in 1994-1995 and the Asian and Russian crises in 1997 and 1999. and resulting investor flight from emerging market economies like Brazil.

With the success of the currency stabilisation plan, dubbed "the Real Plan," Cardoso was elected Brazil's president in 1995 from the Brazilian Social Democratic Party (or PSDB). Cardoso and his aides realised that the currency would need strong economic underpinnings if it were to preserve its credibility and remain stable. To shore up confidence in the economy, the government sought to reduce price indexation and introduce administrative reforms and fiscal responsibility legislation.

The real was introduced and initially maintained at parity with the U.S. dollar. To achieve this, the central bank was required to intervene in the currency market selling dollars from its foreign currency reserves. This was known as a "crawling peg" or "band" system, where the real was allowed to float against other currencies within a certain range of a few centavos.[5]

But with the evolution of the emerging markets crisis late in the decade and insufficient currency inflows to maintain dollar reserve levels, the real came under speculative attack in currency markets. By early 1999, having spent nearly US$40 billion in foreign reserves over a year to defend the real, the government was forced to allow the real to float freely against the dollar. The real underwent a devaluation of more than 20%, weakening from around BRL1.20 per dollar to more than BRL1.60 per dollar.

Around the same time, the government took on a US$41.5 billion aid package from the International Monetary Fund and other leading multi-lateral lending institutions to help back up its balance of payments and renew investor confidence that the country had the wherewithal to maintain a stable economy.

Monetary Policy

Monetary policy in Brazil is determined by the Brazilian Central Bank. The country's Selic interest rate is set by the bank's monetary policy committee, COPOM, which meets eight times per year at intervals of around 45 days. The COPOM uses an inflation targeting system to adjust the interest rate, based on the variation of the country's IPCA consumer price index.

Economy of Brazil

Brazil is the seventh largest global economy ranked according to its gross domestic product. The country has a diversified economy and is a major producer of commodities and industrialised products. Key manufactured goods produced in the country include automobiles and parts, machinery and equipment, textiles, cement, computers, aircraft, steel, petrochemicals and consumer durable goods. Industry contributes more than a quarter of the nation's total GDP, and employs nearly 15% of its labour force. Among important commodities the country produces include iron ore, soybeans, bauxite, oil, corn, sugar, cotton, cocoa, livestock and forest products. Brazil's top trading partners are China, the U.S., Argentina, the European Union and Japan.


Foreign exchange and financial trading in Brazil are regulated by the central bank and by the Brazilian Securities and Exchange Commission, known as the CVM. These two bodies are overseen by Brazil's National Monetary Council, or CMN.

Brazilian Real Currency Pairs

In forex trading on Brazil's BM&Fbovespa exchange, the Brazilian real is commonly traded with several currencies, including USD, AUD and the EUR. It can also be traded in synthetic currency pairs elsewhere.

Real Bills And Coins

Since its introduction, the real has been issued as coins, paper money and plastic polymer money. Brazil's currency is printed by the national mint, called the Casa da Moeda. Some of the popular nicknames for Brazilian banknotes include paus, contos, merreis and pila. Coins of a value of as small as 1/100th of a real (0.01 real), denominated as "centavo," have been issued by the central bank and circulate in Brazil's commerce. Of more common use are coins of 5, 10, 25 and 50 centavos, and of 1 real.[11]

The Brazilian Real Around The World

Brazil's real is not officially convertible. Under the country's legislation, it is prohibited to hold foreign currency in local bank accounts. However, the country's bank has signed accords in recent years for large scale currency swaps, notably with China, to facilitate commerce and financial flows. Additionally, Brazil has signed agreements with trade partners like Argentina and Uruguay for direct exchanges of currency between the countries to reduce commerce in dollars and avoid the foreign exchange costs of doing so.[12]

Where Is The Real Today?

Because Brazil allowed the real to "float" more or less freely against other currencies in 1999, the currency has undergone some active management by the government, which has been deemed by traders and analysts as a "dirty float."

The story of the value of the real in recent years has been told much by the drama, and internal and external struggles over Brazil's budget and foreign trade and industrial policies, as well as the global prices of commodities that make up key components of the country's overseas trade balance.

Although it still floats against other currencies, the country's central bank has used varying mechanisms to manage the strength of the real over the years, including direct sales and
purchases of dollars on the spot market, currency swaps and repurchase agreements.

In the nearly two decades since it was allowed to float against the dollar, the real has varied from highs of around BRL1.60 per dollar to lows of over BRL4.00 per dollar. In addition to local policy factors, the currency has shown itself particularly sensitive to alterations in U.S. interest rates that alter foreign investment flows to emerging markets, and commercial policies from major Asian countries like China that do extensive trade with Brazil.[13]

Any opinions, news, research, analyses, prices, other information, or links to third-party sites are provided as general market commentary and do not constitute investment advice. FXCM will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

FXCM Research Team

FXCM Research Team consists of a number of FXCM's Market and Product Specialists.

Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.



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