Fake Money Saved Brazil for ‘Real’

Everybody uses money, but no one realises how totally fictional it really is.

Here’s a real life example of an entire economy adopting a fake currency as a and literally calling it the ‘Real’, in Brazil, which then replaced the previous currency, and pulled Brazil out of its slump basically by manipulating peoples minds to build confidence.

Almost twenty years ago Brazil was in economic trouble. Their inflation rate hit 80 percent per month. So if milk cost a $1 on the first day, a year later it would cost $1,000. The stores would have to change the prices everyday and people would try to get into the store and ahead of the guy pricing the food and products to get yesterday’s price. The attempts to stop the inflation failed over the years.

This was until a young economist called Edmar Bacha and his friends had an idea to create a fake currency. They called it a “Unit of Real Value – URV.” It was a virtual currency, and did not exist. Everything was listed as a URV. So milk might be at $5 one day, but it was listed as 1 URV. A month later the milk might be $20, but it was still listed as 1 URV. They kept the URV stable. This stabilized the Brazilians faith in their money because they believed it was valuable.

“We didn’t understand what it was,” says Maria Leopoldina Bierrenbach, a housewife from Sao Paulo. “I used to say it was a fantasy, because it was not real.”

Still, people used URVs. And after a few months, they began to see that prices in URVs were stable. Once that happened, Bacha and his buddies could declare that the virtual currency would become the country’s actual currency. It would be called the real.

“Everyone is going to receive from now on their wages, and pay for all the prices, in the new currency, which is the real,” Bacha says. “That is the trick.”

The day they launched the real, Bacha says, a journalist friend asked him, “Professor, do you swear that inflation will end tomorrow?”

“Yes, I swear.” Bacha said.

And, basically, inflation did end, and the country’s economy turned around. In the years that followed, Brazil became a major exporter, and 20 million people rose out of poverty.

How Fake Money Saved Brazil : Planet Money : NPR.

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