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The Brazilian Exchange Rate Crisis of January 1999

Published online by Cambridge University Press:  05 March 2002

AFONSO FERREIRA  and
GIUSEPPE TULLIO
AFONSO FERREIRA
Affiliation:
Afonso Ferreira is professor of economics at the Universidade Federal de Minas Gerais and member of the Centro de Pesquisa em Economia Internacional (CEPE), Belo Horizonte. Giuseppe Tullio is a member of the scientific committee of Osservatorio e Centro Studi Monetari (OCSM) of LUISS University, Rome.
GIUSEPPE TULLIO
Affiliation:
Afonso Ferreira is professor of economics at the Universidade Federal de Minas Gerais and member of the Centro de Pesquisa em Economia Internacional (CEPE), Belo Horizonte. Giuseppe Tullio is a member of the scientific committee of Osservatorio e Centro Studi Monetari (OCSM) of LUISS University, Rome.
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Abstract

From the monetary reform of July 1994 until January 1999 Brazil followed the policy of pegging the new currency (the real) to the US dollar. The central rate was initially fixed at 1[ratio ]1 to the US dollar, but no fluctuation band was set and the market rate was allowed to fluctuate substantially. After a sharp appreciation of up to 15 per cent the real remained at a premium to the dollar for two years (until June 1996). In March 1995, following the Mexican crisis, the Banco Central do Brasil adopted a crawling band without preannounced depreciations. This change in policy was meant to increase somewhat the flexibility of the exchange rate regime while still maintaining an anchor for inflationary expectations. The market rate depreciated by 13.9 per cent in the course of 1995 (December 1995 on December 1994), 7.1 per cent in 1996, 7.3 per cent in 1997 and 8.3 per cent in 1998. By December 1998 it had reached 1.2054 to the US dollar, a depreciation of only 20 per cent with respect to the central rate fixed at the end of the hyperinflation but about 40 per cent with respect to the rate prevailing in July 1994.

Type
Commentary
Information
Journal of Latin American Studies , Volume 34 , Issue 1 , February 2002 , pp. 143 - 164
Copyright
© 2002 Cambridge University Press

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Footnotes

The authors would like to thank an anonymous referee for valuable comments on a previous version of the commentary.