Rampant inflation has been one of the banes of Latin American economies during the postwar era. Brazil was no exception; it went through a series of cruzeiros, cruzeiros novo, cruzados and cruzados novo, with each succeeding currency being worth less than its predecessor, before finally adopting the real in July 1994.
The BRL has been managed better than its predecessors, but even with a monetary policy designed to check runaway prices, Brazilian inflation has outpaced that of the U.S. over the BRL’s life. The average annual rate of consumer inflation for Brazil, 8.73 percent, has been more than three times the 2.53-percent rate reported in the U.S. The currencies of high-inflation countries often are chronically weak, so we have to look behind the BRL’s strength to see what has been driving it higher.
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