the fake currency that saved a nation

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Presented at UT Dallas for the Management Honors Program International Business class on 11/2/10.This is a brief overview of the economic history of Brazil, including the amazing story of conquering hyperinflation and then the incredible rebound of the economy over the past 15 years.

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Page 1: The Fake Currency that Saved a Nation

http://www.flickr.com/photos/11118948@N00/173169697/

The Fake Currency That Saved a Nation

Page 2: The Fake Currency that Saved a Nation

Marcelo SomersMedia Product Manager

Sabre Holdings@marcelosomers

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why am i here?

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that’s actually my cousin...

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Fake Money Saved Brazil...

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in the late 80s,

Brazil had a bit of a problem

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the inflation rate hit 80%...per month!

that means if eggs cost $1, they’ll cost $2 a month later.a year later, they’ll cost $1,000

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grocery shopping wasn’t much fun...

• A freezer became your best friend• Prices changed throughout the day• Products would disappear

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there were a few perks...

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0

750

1500

2250

3000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Cons

umer

Pric

e In

dex

http://www.indexmundi.com/brazil/inflation_rate_(consumer_prices).html

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0

750

1500

2250

3000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Cons

umer

Pric

e In

dex

http://www.indexmundi.com/brazil/inflation_rate_(consumer_prices).html

huh?

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Attempt #1 - 1986the cruzado plan- General price freeze

- Wage readjustment and freeze

- Readjustment and freeze on rents and mortgage payments

- A ban on indexation

- A freeze on the exchange rate

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Attempt #1 - 1986the cruzado plan- General price freeze

- Wage readjustment and freeze

- Readjustment and freeze on rents and mortgage payments

- A ban on indexation

- A freeze on the exchange rate

Failed

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Attempt #2 - 1987the bresser plan

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Attempt #2 - 1987the bresser planFailed

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Attempt #3 - 1989the summer plan

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Attempt #3 - 1989the summer planFailed

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Attempt #4 - 1990the collor de mello plan

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Attempt #4 - 1990the collor de mello planthis one actually sounded pretty good...

- Removed restrictions on free enterprise

- Increased competition

- Privatized public enterprises

- Boosted productivity

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Attempt #4 - 1990the collor de mello planthis one actually sounded pretty good...

- Removed restrictions on free enterprise

- Increased competition

- Privatized public enterprises

- Boosted productivity

Failed

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lesson learned...you can’t centrally plan an economy

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Hurray Free Markets!

http://3.bp.blogspot.com/_x1Xe0kyzOQs/TEZsxx1XYoI/AAAAAAAAAaQ/6qFENwk98FA/s1600/simex3a.jpg

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what can a government

control?

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what can a government

control?

fiscal policymonetary policy

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Quick Economics 101 Reminder...Monetary Policy: the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest to attain a set of objectives oriented towards the growth and stability of the economy.

- Open Market Operations- Discount Rate- Reserve Requirements

Fiscal Policy: the use of government expenditure and revenue collection to influence the economy.

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Plano Real4 drinking buddies who created a fake currency and saved an economy.

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hardly your average drinking buddies...Gustavo Franco - PhD Economics, HarvardPérsia Arida - MIT EconomicsEdmar Bacha - First Brazilian to receive a PhD in Economics @ HarvardPedro Malan - PhD Berkley

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You have to slow down the creation of money. But, just as important, you have to stabilize people's faith in money itself.  People have to be tricked into thinking money will hold its value.”

‘‘http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake-money-saved-brazil

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Unidade Real de Valor (Real Value Unit)

the fake currency

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July 1, 1994

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modern-day Brazil

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Fernando Henrique CardosoPresident, 1995 - 2003

Privatization of enterprises

http://www.scielo.br/scielo.php?pid=S0034-71402005000200001&script=sci_arttext

‘‘ The results indicate that these companies became more efficient after privatization. In particular there was an increase in profitability and operational efficiency. Apparently, the loss of financial support from the state has a major impact on the financial structure of companies, we observed an increase of current liquidity and a reduction in long-term debt. ”

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embraer

modern globality

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http://en.wikipedia.org/wiki/File:Lula_-_foto_oficial05012007_edit.jpg

Luiz Inácio Lula da SilvaPresident, 2003 - 2010

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Bolsa Familía(family allowance)

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provides a monthly allowanceto families whose children are vaccinated and attend school

Bolsa Familía

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For families with per-capita income below R$140/month:R$22 ($12) per child attending school (max 3)+ R$68 for families with per-capita income below R$68/month

Bolsa Familía

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Poverty27.7% decline during Lula’s first term

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Bolsa Familíadoes it really work?

my opinion

...

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Final thoughts on Brazil...• Censorship• Communism/Marxism• De-Privatizing Companies

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Final thoughts on Brazil...• Amazing investment growth• Taxation Meter (increase in taxes 3 months ahead)

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Can Brazil continue its amazing success?

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One more thing...

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questions?

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thanks!@marcelosomers

blog.marcelosomers.comslideshare.net/msomers