RIC? No It's BRIC (Part Two)

After brief meetings with the president and other representatives of state, the group of four embarked on their mission. Their plan was simple enough; print less money for obvious reasons and rebuild the public’s faith in the common currency (which is absolutely key as reflected in last week’s money posts). The former seems difficult as it is, I mean it’s not exactly easy to convince someone to stop turning paper into money when they have the power to do so. Yet hard as it may be, the latter was much bigger a problem as it meant somehow convincing the populace that money had value and should be trusted (would you trust the dollar if the egg example above were a reality?!). Yet recognizing this issue as foremost in the struggle to revitalize Brazil’s economy was the very genius behind the plan.

To do this, they set about creating a brand new virtual currency, the unit of Rio value or URV, without the expected coins or notes nor meant to replace the cruzeiro (the failing entity at the time). The URV was then used to denote all values merely as a label that translated to a varying number of cruzeiros. In the case of our pack of eggs, the eggs may become equated to 1 URV, so now whenever you went to the grocery store and found your eggs, they would always be 1 URV. It was only after you went to checkout that the cashier would then inform you of how many cruzeiros that 1 URV meant. This was applied to anything that had to do with money so wages, prices and even taxes were listed in URVs. At this point it occurred to me and you yourself might be saying that this solved nothing. All we’ve done is add a medium of exchange for a medium of exchange and all of this at the expense of the poor old “sticker-man’s” job. Yet the key to the URVs success was its stability in that thought its value fluctuated on a daily basis, it represented the same thing to people because now one URV always was and always would be your wonderful, Sunday morning eggs. Thus people began to think in URVs, and started to believe in this constant and unchanging value.

Finally the day came that all of a sudden, the cruzeiro vanished and the URV, almost symbolically renamed the real (pronounced ray-al), took its place. And on July 1^st, 1994, the Brazilian Central Bank distributed the new currency and the BRL became Brazil’s official currency. The result can only be described as miraculous as poverty decreased, the economy boomed and faith was restored.

This is the story of the B in BRIC and with genius as was displayed in the URV, we would be hard-pressed to say Goldman-Sachs prediction will not at least in part come true.