How Fake Money Saved Brazil

The four economists wanted to create a new currency that was stable, dependable and trustworthy.  The only catch: This currency would not be real.  No coins, no bills.  It was fake.

"We called it a Unit of Real Value — URV," Bacha says. "It was virtual; it didn't exist in fact."

People would still have and use the existing currency, the cruzeiro.  But everything would be listed in URVs, the fake currency.   Their wages would be listed in URVs.  Taxes were in URVs.  All prices were listed in URVs. And URVs were kept stable — what changed was how many cruzeiros each URV was worth.

Say, for example, that milk costs 1 URV. On a given day, 1 URV might be worth 10 cruzeiros. A month later, milk would still cost 1 URV. But that 1 URV might be worth 20 cruzeiros.

The idea was that people would start thinking in URVs — and stop expecting prices to always go up.

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And, basically, inflation did end, and the country's economy turned around. In the years that followed, Brazil became a major exporter, and 20 million people rose out of poverty.

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