Historical Sketch

According to the 1494 Treaty of Tordesillas the eastern part of South America belonged to the Portuguese part of the non-European world. The claim was laid with the arrival of the Portuguese fleet under Pedro Álvares Cabral in the year 1500. The Portuguese settlement began in 1532, and the colonial General Governorate was established two decades later. Brazil gradually gained weight within the Portuguese empire. In 1714, the Viceroyalty was established, and during the Napoleonic Wars, the Portuguese court moved to Rio de Janeiro. To permanently relocate the seat of the government also after the end of the Peninsular War, the United Kingdom of Portugal, Brazil, and Algarves was constituted in 1815 with the European and American parts on the same footing. However, the 1820 revolution in Portugal forced the court back to Lisbon and the abolition of the United Kingdom. Brazil did not accept the re-establishment of the colonial rule and declared independence from Portugal in 1822 with the Portuguese heir apparent as emperor. In a succession of wars with its neighbours, which had developed out of the Spanish colonial empire, the Brazilian territory got enlarged throughout the 19th century. In 1889, the monarchy was overthrown and the Empire of Brazil got reconstituted into the Federal Republic.

Monetary History Overview

Since the establishment of the first settlements, Brazil had been part of the Portuguese monetary area, based on the medieval Real which throughout the centuries had been reduced to a minuscule unit so that specie coins were rated in the thousands. In 1747, Portugal devalued its silver coinage against gold and, for the first time, distinguished between Portuguese and Brazilian accounting. Afterwards the Portuguese gold and silver coins passed at an 11% higher nominal value when expressed in units of the 1st Brazilian Real. In the following, Brazil began issuing her own coinage that displaced the metropolitan one except for the gold coins. In 1833, the Brazilian currency system was modernized. The 2nd Brazilian Milreis was a gold currency, and the coins were denominated in decimal multiples only. The name "Milreis (= thousand Real)" was commonly used to avoid the large numerals and occasionally printed on the paper money, the currency law, as well as the circulating coins, however, only used Real denominations. The Milreis was devalued in 1847, the weight of the gold coins being reduced by three eights. Gold was, however, scarce and the daily payment transactions were dominated by silver coins in the size of the Spanish Dollar and paper money issued by the government and various commercial banks. Private money issuance was abolished in the 1890s when the state-owned commercial banks took over. The currency situation remained unstable until the end of the monarchy. In 1906, a first attempt was made to remediate the monetary situation. The Milreis was massively devalued and pegged to the Pound Sterling. The circulating gold coins were withdrawn and replace by paper of the Conversion Fund, a state bank created for exactly this purpose. The issuance of paper money by the central and provincial governments was ended, and the exclusive issuing privilege went to the state-owned Bank of Brazil (the third institute of this name). The stabilization prevailed until the outbreak of the First World War. The economic crisis of Great Britain, the most important trading partner, spread to Brazil. In 1926, in a second attempt at remediation, the Milreis was devalued again and the circulating paper money was exchanged with amounts exceeding a threshold value being transformed into state loans. The 1926 currency law created the Cruzeiro as the new unit of account, but the redenomination of the paper money and coins was postponed until further notice. Finally in 1942, the 1st Brazilian Cruzeiro came into being. It was pegged to the US Dollar, but the official rate was restricted to government transactions, while all other business was carried out at a multitude of parallel exchange rates. In 1953, the exchange controls were levied, and the Cruzeiro was set to float. The strong depreciation continued throughout the 1950s and 1960s until December 1964 when a Dollar peg was reinstalled. A real stabilization could not be achieved, and in two steps the Cruzeiro was devalued by another 30%. In January 1966, three zeros were cut, and the 2nd Brazilian (New) Cruzeiro became the new currency unit. The new banknotes and coins were issued a year later, in February 1967. The Dollar peg was abandoned one year later, and the depreciation continued throughout the 1970s and even accelerated in the 1980s, so that within a decade a series of currency redenominations took place. In February 1986, another three zeros were cut, and the 1st Brazilian Cruzado became the new currency. As the monetary policy did not change the depreciation accelerated further such that in January 1989, for the third time in a row, three zeros were cut crating the 2nd Brazilian (New) Cruzado. It lost more than 95% of its value within a year, then it was replaced by the 3rd Brazilian Cruzeiro. The focus of the operation was the reduction of the money surplus. The changeover of cash occurred on par but deposits above a threshold got blocked for 18 months and released in annual instalments afterwards. By then the unbroken hyperinflation had turned the measure into a confiscation. In August 1993, the fourth three-zeros cut was carried out. The Brazilian Cruzeiro Real stayed for 11 months in which it lost more than 95% of its value. In 1994, the government started a thorough reform of the currency. In March, the 3rd Brazilian Real was created as unit of account on par with US Dollar. During a 4-months transition period the economy switched over from the still depreciating Cruzado Real. In July 1994, the currency changeover took place. The Dollar peg of the Real was released and the depreciation resumed at a slower pace than before and could finally be stopped in the early 2000s, when 70% of the value had gone. Half of the loss was recovered until the end of the decade, but after the mid-2010s another steady depreciation has set in.

Brazil joined the International Monetary Fund (IMF) on 14.01.1946.

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