What was the Plano Real?

A country that changed prices every day

By 1993, what worried Brazilians most was the price of bread. Inflation ran close to 30% a month. Since 1986 the country had tried one plan after another: the Cruzado Plan, the Bresser Plan, the Summer Plan and, in March 1990, the Collor Plan, which froze for 18 months every savings balance above 50,000 cruzados novos. None of them held, and along the way Brazil changed its currency several times. Supermarket clerks spent their days with price guns, relabeling the shelves.

In May 1993, President Itamar Franco appointed his fourth finance minister in seven months, Senator Fernando Henrique Cardoso, who brought in a team of economists, several of them veterans of the Cruzado. Among them were Edmar Bacha, Pérsio Arida and André Lara Resende.

Inflation has a memory

The team started from a diagnosis. Everyone adjusted prices and wages by last month’s inflation, so yesterday’s rise became tomorrow’s. Freezing prices did not cure that: the Cruzado, the Bresser and the Summer plans had all frozen them, and inflation came back every time. The answer was a plan in three steps, announced in advance.

1. The accounts. A fiscal adjustment, with an emergency fund called the Fundo Social de Emergência, to put the government’s budget in order.
2. The URV. On March 1, 1994, a new unit of value appeared that nobody could hold in their hand. It existed only to count.
3. The real. On July 1, 1994, the URV became money, under a new name.

The Real Unit of Value (URV) is hereby established, with legal tender to serve exclusively as a standard of monetary value […]. The URV shall acquire the power to settle payments upon its issue by the Central Bank of Brazil, when it shall be called the Real.

Two currencies for four months

From March to June, Brazilians lived with two currencies: one in their pockets, the cruzeiro real, which lost value every day, and one in their heads, the URV, which did not. Wages, prices and contracts were counted in URV. Shops showed two prices on every label, and the price in URV barely moved. On March 1 one URV was worth 647.50 cruzeiros reais; on June 30, 2,750.

July 1, 1994

On Friday, July 1, people lined up at bank doors to swap their old money. Each real was worth 2,750 cruzeiros reais, the URV’s last value. The new notes carried Brazilian animals, like the hummingbird on the one-real note. When it came out, the finance minister was already someone else: Rubens Ricupero.

The effect showed at once. In March, when the URV began, prices rose 43% in the month; in June, 47%. In July, the real’s first month, 6.8%. In August, 1.9%. For people living on wages, the money of the first of the month still bought the same things at the end of it.

So the plan was not a single decree, as it is often remembered. It took three steps in a little over a year, a law and a provisional measure, with no price freeze and no confiscation. Who presided over those years is in Who was Itamar Franco?.