A Real Problem: Brazil's Currency Depreciation and Inflation

1263 WordsJun 19, 20186 Pages
1. Introduction A decade ago, an American’s experience in Brazil may have included a trip to a soccer game, a visit to see the statue of Christ the Redeemer, and a many cups of the country’s famous coffee. For those that could afford it, this seemed like a desirable vacation destination. Again, with the exchange rate in 2003 at 3.5 reais to the dollar, this was a vacation only for those that could afford it. One might assume that this high exchange rate comes with a high standard of living and a high value of money for Brazil’s own citizens. As my article states, this is not the case. The current exchange rate is not as high as the 2003 figure – it currently sits at 2.3 reais to the dollar. In real terms, this is barely half of the 2003…show more content…
The only reason Brazil hasn’t completely gone under is the continued demand for its primary exports – coffee and coffee products. 2. Theory Review and Analysis The inflationary problem in Brazil is tough to address and does not have one clear solution. However, I believe the government of Brazil can fix their problems by using monetary policy tools. Additionally, the country needs to cut red tape and make it easier for start-ups to benefit from the massive spending of Brazil’s citizens. Prices need to take a considerable drop, but for this to happen the country would need to cut down on a plethora of costs. For example: I know crime rates are severe, but funding a near army of 650,000 security guards is too expensive a solution. We know that during times of inflation, those who benefit are the ones who owe money (debtors). A store in Brazil accepting payments in installments doesn’t make any sense. Although this system is benefitting customers, it needs to be put to an end. As prices constantly increase in times of inflation, a creditor receives less purchasing power by allowing a customer to pay over time. Businesses receive less real income this way, leading to less productivity, and eventually business failure. The country needs more firms – more businesses that attract locals and persuade them to spend their money at home in Brazil. On top of increasing domestic spending, Brazil

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