The Brazilian real is sliding down a painfully familiar path

Going, going…gone?
Going, going…gone?
Image: Reuters/Nacho Doce
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Brazil’s real hit its lowest level since it was introduced in 1994 to rescue the country from economic doom.

The currency closed at a historic low of 4.18 real to the US dollar yesterday (Sept. 23) as Brazil struggles with some of the same problems of the early 1990s era: high inflation, budget deficits and a faltering economy. 

It may be little consolation to Brazilians, but the economic ills back then were much, much worse. In some years, inflation exceeded 2000%.  The exchange rate for the real’s predecessor, the cruzeiro real, was nearly 1,800 per US dollar in 1994.

To restore Brazilians’ faith in their currency, a group of economists established a make-believe currency that was linked to the dollar and remained stable in spite of the jittery cruzeiro.

It worked. The fake currency was later replaced with the real, which started its life at near parity with the dollar.

Given Brazil’s ongoing currency woes, it might be time for another confidence booster.