BRL - Brazilian Real

History of the Brazilian Real

Prior to the official introduction of the Brazilian Real in 1994, Brazil used the cruzeiro real which is later exchanged at the rate of 1 Real = 2,750 cruzeiros reais. The Brazilian Real was once pegged at a 1:1 exchange rate with the U.S. Dollar; however, its value has since declined to approximately 0.18 USD.

Currencies previously used in Brazil are as follows:

• 16th — 18th Century: The Portuguese real was used, with 1,000 réis referred to as milréis.

• 1747 — 1942: The old Brazilian Real, valued at 1,000 réis (also known as milréis), was in circulation.

• 1942 — 1967: The first cruzeiro was introduced, valued at 1 cruzeiro = 1 milréis or 1,000 réis.

• 1967 — 1970: The Cruzeiro novo was introduced, with 1 cruzeiro novo = 1,000 of the first cruzeiros.

• 1970 —  1986: The second cruzeiro was in use.

• 1986 — 1989: The Cruzado was introduced, valued at 1 Cruzado = 1,000 of the second Cruzeiros.

• 1989 — 1990: The Cruzado novo was introduced at a rate of 1 cruzado novo = 1,000 cruzados.

• In 1990: The currency was renamed the third cruzeiro and was used until 1993.

• 1993 — 1994: The Cruzeiro Real (CR$) was introduced, with a value of 1 Cruzeiro Real = 1,000 of the third Cruzeiros.

Brazilian Real denominations

In Brazil, the official currency is the Real (BRL), and both coins and banknotes are currently in circulation. Below are the specific denominations:

Brazilian Real coins

The Real coins currently used and circulating in the country belongs to the second series of coins, which was first introduced in 1998 by the Central Bank of Brazil. The coins come in the following denominations:

• 1 centavo (no longer produced but remains to be legal tender)

• 5 centavos

• 10 centavos

• 25 centavos

• 50 centavos (originally made from cupronickel but then changed into stainless steel)

• 1 real

Brazilian Real banknotes

The Real banknotes used today also belong to the Second series announced on 3 February 2010. With the second series, we can see major changes regarding security enhancements and different sizes of the notes. These changes were implemented to accommodate the expansion of the Brazilian economy and the demand for a more robust and secure currency. The banknotes come in the following denominations:

• 2 reais (blue)

• 5 reais (purple)

• 10 reais (red)

• 20 reais (yellow)

• 50 reais (brown)

• 100 reais (cyan)

• 200 reais (gray)

Exchange Rate Regime of the Brazilian Real

Brazil currently employs a floating exchange rate regime, meaning that the exchange rate of the Real (BRL) is determined by supply and demand in the foreign exchange market without direct intervention from the Central Bank of Brazil. 

However, the Central Bank may step in to reduce excessive fluctuations and maintain liquidity in the market. Such intervention measures often include providing foreign exchange risk hedging contracts or supplying liquidity to market participants. 

This floating exchange rate regime aligns with Brazil's inflation-targeting policy, aimed at maintaining economic stability and controlling inflation.

History of Brazilian Real’s value

• 1994-2002: When first introduced, the Real was pegged at a rate of 1 BRL = 1 USD. Due to economic pressures, Brazil floated the exchange rate in 1999, causing the currency to depreciate significantly.

• In 2003: The exchange rate was 1 USD = 3.52 BRL.

• In 2005: The rate was 1 USD = 2 BRL.

• In May 2007: The value of the Real exceeded 0.5 USD.

• In 2010: The exchange rate was 1 USD = 1.66 BRL.

• In September 2015: The exchange rate reached 1 USD = 4.05 BRL.

• In February 2017: The exchange rate recovered to 1 USD = 3 BRL.

• In 2020: Due to the COVID-19 pandemic and other economic factors, the Brazilian Real continued to fluctuate significantly, with the exchange rate varying from approximately 4 BRL/USD to over 5.9 BRL/USD.

• In August 2022: The rate decreased from 1 USD = 5.3 BRL to 1 USD = 5.05 BRL.

Brazil's floating exchange rate system enables an accurate reflection of Brazil’s market supply and demand conditions, while also facilitating inflation control. However, this currency has also experienced significant fluctuations throughout history, impacting both the economy and the people of Brazil.

Factors Affecting the Value of the Brazilian Real (BRL)

The value of the Brazilian Real (BRL) is influenced by various economic and financial factors. Here are some key elements:

• Corruption in Brazil: Corruption is a significant factor that impacts the value of the Brazilian Real, undermining investor confidence and ultimately affecting the currency's value.

• Global Economic Conditions: The global economy and trade relationships have a significant impact on the value of the Real. Economic recessions in Brazil's key trading partners can decrease demand for exports, resulting in a drop in the value of the Real.

• Monetary Policy of the Brazilian Government: The government adn the central bank have the ability to intervene in the currency and foreign exchange markets to stabilize the value of the BRL. Measures such as fiscal policy and direct market intervention can help maintain the currency's stability.

• Global Gold Prices (XAU/USD): Gold prices significantly affect the monetary policy of many countries, including Brazil. When gold prices rise, the value of the Brazilian Real may also increase. The Central Bank of Brazil might intervene by selling Reais to prevent the exchange rate from rising excessively, hence maintaining a competitive advantage for exporters.

• Bank Interest Rates in Brazil: The interest rates set by the Central Bank of Brazil significantly impact the value of the Real. When interest rates rise, the Real may increase in value as investors seek higher returns. Conversely, if interest rates decrease or remain low, the Real may lose value as investors look for more effective investment opportunities.

The value of the Brazilian Real is affected by numerous internal and external factors, ranging from global economic conditions to government policy decisions. Monitoring and analyzing these factors are vital for gaining a better understanding of the dynamics of this currency.