The article doesn't tell lies, but it certainly spices up a lot the story. Some points to clarify:
* The "finance minister who knew nothing about economics" was actually a very respected sociologist, a senator and a very intelligent and skilled politician. He later became known as president Fernando Henrique Cardoso. I.M.O. one of the best 3 presidents this country had.
* What Edmar Bacha, Pedro Malan and others did was to break inflation's inertia/momentum. A lot of people already knew it was necessary; but no one else knew how to do it.
* The article doesn't comment on the strict and cautious monetary policy implemented by Fernando Cardoso. It was as much important as the "fake money" trick.
* Big inflation was a huge tax on the poorest people. Because they were poor, they didn't have the knowledge and means to protect against rising prices. It is because inflation ended that they began consuming more and the country increased their internal markets.
Diego, thanks for the much necessary clarification.
Besides the monetary policy that you mention, Cardoso also implemented a stricter fiscal policy. There's no way they could have defeated hyperinflation without cutting government spending. He also continued the trend -- started by the previous administration -- of opening the economy (slashing the tariffs, etc) and privatizing state companies.
The most important aspect of the plan was that all the triggers that were put in place to automatically raise prices, tariffs, and salaries were turned off.
These were the biggest producers of inflation and were what made Brazilian inflation unique. It was a sort of administrative inflation.
It's also valid to mention that the impeached president also ended up helping out in one way: he froze the saving accounts, since one way to stop inflation is to cut down the buying power of the population.
"He said, 'Well, I've just been named the finance minister. You know I don’t know economics, so please come to meet me in Brasilia tomorrow,' " Bacha recalls.
So, three things had to happen:
1. A politician had to admit his ignorance
2. Some bright spark technocrat somewhere had the right solution to a seemingly impossible problem.
3. The right politician asked for help from the right technocrat
Afterward, everyone with a stake in the country's direction realizes that having a technocrat who shares your views and has personal access to the administration is a great way to influence policy. The money spigot opens, and pretty soon having the 'right' opinion is far better for your career than independence. Survivor bias eventually ensures that the technocracy is dominated by people with the 'right' opinion.
And that's when you'll know that your country has achieved parity with the United States.
Just like the New Deal only worked once and now every scam just claims it's the New, New Deal.
Sure, the populace might have a memory of a generation but the technocrats have a longer memory and after first success, the next effort is dogged by the realization, "look what I'm going to get, look who I get to be..." (as the gp said, it's the careers of the technocrats one has to look at).
I say this looking at the horrible, awful fail of the current president, a fail of what could have been the renewal of the country but by this very mechanism was fore-ordained to be a lurid catastrophe. Roosevelt sold out a lot to Wall Street too, btw, he just had a clean enough start to make his approach work.
The New Deal never worked but oddly enough, it's trying to happen again. Bad deals happen over and over. The ones that work, the ones that require effort only happen once.
More accurately, some of the New Deal (deposit insurance, fiscal & monetary expansion, leaving the gold standard) worked, but some of it hurt. The fact that many countries suffered for just as long and worse, if not longer, without analogous policies makes me wary of the authors' modeling.
> Recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly four-fold and organized labor suffered a string of setbacks, the economists found.
That wouldn't have been around 1939-45 or so, would it?
And it definitely felt like one. You have no idea how much the country changed (for the better) because of this improbable miracle.
Nobody believed it would work because the whole country had lost faith in "magical" economic reforms like the one before it, the Collor Plan.
Imagine you wake up one day and all of your bank accounts are frozen - that's what happened to my parents (and most of the population) on March 16, 1990 when the Collor Plan was announced. It's your money, but you can't spend it - sorry. My father had been saving money in order to buy a new house. Years later he recovered less than 1/10 of the original sum. Lots of small businesses (including family and friends) went broke.
When I talk to my parents about pre-real days it feels like they were born in a different country than I was.
Wow, I guess that explains the uptick in the brazilian population in South Florida during that time. One year of school I only knew one brazilian kid on the bus. The next year over half the bus was brazilian. Big migrations like that usually happen because of economic reasons or war. I just never put 2 and 2 together until now.
There is no such thing as a "real value" as measured in a vacuum. Value only comes in relation to something: a commodity or a basket of goods. What they did in Brazil was to establish a new currency which the government promised not to inflate, then as inflation destroyed the previous currency, the way was open for the new one. This is how inflation was ended in Weimar Germany, post-WW2 Hungary, '90es Serbia/Romania/Russia. Only Zimbabwe handled things so poorly that the national currency vanished completely.
Even if people learn the value of their inflating money with respect to more stable things, inflation STILL eats away at the value of their savings. It does them no good to learn prices are stable (with respect to an arbitrary standard) except to learn they are indeed getting poorer.
Also, freezing bank accounts and banning the trade of foreign currency only makes matters worse. People not being able to access their money does make them poorer still.
1. You can't inflate at leisure without destroying the currency.
2. You can't have a peg to a foreign currency if you keep inflating faster than that currency's central bank.
3. You can't then cover up for the misdeeds of the government by denying people access to their savings.
Of course there is no "real value". However, inflation is not solely the result of the government's wishes to inflate the currency (as examples of hyper-inflation obviously show).
Inflation is also simply in the minds of the people using the currency. If everyone expects high inflation, and keeps raising their prices to match their expectation of inflation, then inflation will happen - the raising of prices will ensure that. And if you try to fix that by force, as you pointed out, the inflation accelerates even more, because it's now happening in a black market with even more waste.
The way they fixed inflation in Brazil was, it appears, by changing people's expectation of what should happen to currency. They had to get everyone to believe that the brazilian currency can be stable. The mechanism they used to do that was the cheap trick of creating an alternative currency and calling it "real". It may be a cheap trick, but from the look of it, it worked.
No, inflation is not only in people's minds, it's a real measurable monetary phenomenon.
Sellers can raise prices but if there is not enough money to pay the price then no transactions occur, The sellers would then have to lower their price to sell the items.
In other words an increasing rate of inflation throughout the economy can only occur if there is enough money/credit available to pay the higher prices. You need more money available, an increasing money supply.
What's wrong with this NPR article is for everybody to think a "cheap trick" is what made it work. No, the tight fiscal policies (ie balanced budget) enacted by Brazil at the same time made it work.
The ideas in this article, coupled with Krugman's debt default idea is sending you down a river to a waterfall.
The price of goods can vary somewhat based on public sentiment, but the underlying cause is the printing of money. And it is correct of the public to mistrust a government that has proven untrustworthy in the past. The first steps to regain confidence are to end money production and cut expenses. A drunkard can't be trusted unless he is seen without a bottle first. So basically the government cleaned up its act first, there was no deception. If deception had indeed happened, money production would have still accelerated.
If you’re a politician, it’s easier to admit your ignorance when your five predecessors who claimed to know what they were doing got brutally mugged by reality.
It's a 100% real story. I lived in these days. I had to put a feature called "currency change" in my softwares because every year we had to divide by 1000 all values in databases.
One major work was to adjust fields sizes because currency values are allways causing data overflow.
> we had to divide by 1000 all values in databases
Those were the days!
It's absolutely impossible for me to say how much I paid for my first car. I know it were 4000 monetary units, but I cannot recall its name nor how much it cost. That's weird.
Wow. Last night I was thinking... if I was a supermarket manager in an inflation-ridden country, how would I save money by not changing price tags everyday? And my answer was to set one of my products as "1 Unit" and just price every other product in multiples of that "Unit". That way I only had to change the price of a single product!
And then today I read this! What a coincidence! I never would've thought you could scale up this technique up to do it to the whole country!
During the hyperinflation in the Weimar Republic, grocers dealt with this by changing the organization of their stores. Instead of grouping like-kind items together, they grouped like-priced items, then they would just bump the prices for each aisle.
That is certainly one solution, but what happens when the government puts a limit on how much you can charge for bread?
The best solution is the one my current supermarket uses - the price tags on the shelves are a cheap LCD display, so all they have to do to update the prices are to push the new prices from a database.
"From there to here, from here to there, funny things are everywhere!"
I have been introduced to this masterpiece by reading some of the books to my daughter and it's a real delight, apparently as much for her than it is for me.
It's an interesting story but the frightening thing is the comments of people wondering out loud what's wrong with inflation, or asking for more inflation in the USA.
Out of control inflation is a terrifying, society-destroying phenomenon. Stable and prosperous societies rely on stable money values.
A friend of mine who lived in Peru around this time told me that when he got paid he would literally run as fast as he could to change the money to US$ because the longer he took to change it, the less it was worth.
The people who are asking for more inflation in the USA are asking for something in the 2% range, or (for those who are truly bold) asking for prices to rise to the level they would be at if inflation had remained in the 2% range for the past five years or so.
Stable money is good, but so is providing people with an incentive to spend and invest, rather than incentives to hoard cash and default on their debts.
The party was had, the hangover must be endured. Bad investments were made, they must be liquidated and written off, and these are deflationary.
True inflation (not the manipulated government statistics) is really a measure of the market. To say that inflation is at the wrong value is to say the market is wrong. The Fed has been striking matches for a while now trying to get inflation to catch on and stand by with the wet blankets when it starts to get out of control. The banks are stuffed full of cash but don't want to lend. If they throw any more fuel onto the fire it might catch and spread faster than they can deal with. Then it's the 1970's all over again and your lifetime savings are decimated in the space of a few years.
People believe that more inflation is needed, then you believe the market is wrong and more intervention by central powers is right. It's ok to believe that, but I'll never agree. High inflation punishes the savers, lenders and investors, and rewards the speculators and borrowers.
I'll admit, my investment strategy is biased towards a breakout of inflation. But that's because I believe the central banks are so wedded to the idea they won't let it go, not because I agree with them. You can't double the money supply in under 2 years without a flow-on effect, even if it's not immediate.
We already had way too much government investment encouragement with artificially low interest rates for years. People do not need more incentives to spend. btw, we still have rockbottom low interest rates.
What happened in this crisis is over-investment and over-supply. That waste needs to be rolled back and we need to get back to a balanced budget - which is what Brazil did - it's not even mentioned in that article all the strict fiscal policies Brazil enacted like a balanced budget amendment!!!
The easy money policy causes businesses and people to borrow money they do not have (debt) in false expectation of future profits/income, and they spend money wastefully because they think they have more than they do have.
Now people must save and recapitalize and pay off debt. Some bsinesses must fail. Real estate prices must fall. Public expenditures must be reduced.
People are NOT hoarding cash. Ridiculous. Businesses are saving because look ahead and they know rates will have to increase and the hardships are not over. They are are borrowing at low rates in expectation of higher rates in the future (it would be more expensive to borrow in the future when rates rise)
Capital that was malinvested during the boom period has to be accumulated again to return to previous productivity levels. The method to accumulate capital is saving.
That graph doesn't show that people are hoarding cash, it shows that they are saving. If they're investing in stocks the money doesn't go out of circulation and if they put it in a bank it mostly doesn't go out of circulation. All of which isn't to say that there are people or institutions hoarding money, only that your graph is irrelevant to that.
What scientists, technocrats and economists forget is that public policy is rarely driven by rationality. It is driven mostly by private interests, demagoguery, blind ideology, prejudice and the public misconceptions.
The idea of taking a little bit of a very dangerous medicine is something that no one should take lightheartedly.
There's a big difference between inflation and hyper-inflation.
An inflation rate of between 1% and 3% is generally seen as a sign of a healthy economy (There is sufficient demand for products that some prices can naturally rise, without causing economic disruption. It also implies a low unemployment rate, in that the economy is sufficiently close to full employment to be able to tolerate some price movements)
Some central banks even go so far as to formally announce a inflation target, which gives the markets a more predictable way to forecast interest rates. See http://en.wikipedia.org/wiki/Inflation_targeting
OTOH, hyper-inflation implies a lack of confidence in the currency and economy.
In a lot of ways this is similar to unemployment. Generally, low unemployment is good for the economy (and presumably society) until it reaches a point where businesses are unable to grow because of a lack of labor. When economists talk about "full employment" they usually mean this point - where labor constrains the economy - rather than an actual 0% unemployment rate. (While this sounds quite harsh, there are good reasons why any economy will have an unemployment rate greater than 0%. For example, often the centers of population do not coincide with the places jobs are)
The problem is that if you try to maintain no inflation, you run the risk of succeeding too well and getting deflation. Deflation is known to lead to persistent recessions, and is very, very difficult to fix once it sets in. (Just ask Japan how deflation has been for them. Or the USA how we liked the Great Depression.)
Therefore it isn't as simple as inflation bad, no inflation good. Rather it is too much inflation bad, any deflation bad, and you need to be in the middle. Which means that you want to maintain a small amount of persistent inflation - just enough to avoid the risk of miscalculating and going into deflation, but no more.
A big worry for the USA at the moment is that the current credit issues could lead to deflation.
Inflation is preferable to deflation. And the goal of no inflation is unrealistic from both practical and theoretical perspectives. There are a number of inherent incentives for a minimal inflation policy: to hedge against deflation, to reduce the real value of debt, to induce spending, etc.
It’s also “playing with fire” to, in the name of keeping inflation down, depress demand so much that it plunges the whole country into a massive recession. In other words, any economic policy can be taken too far, and the dangers of any approach can be caricatured and exaggerated. It’s not like the policy of inflation fighting isn’t equally driven by “private interests, demagoguery, blind ideology,” &c.
Fiat currency is used by the State to demand an equity stake in your money, and they define the terms. Any entrepreneur should know this is a bad deal, and it will always result in inflation. Imagine if VC's used a "living document" to govern your deal terms, their share will always get BIGGER, and your share will eventually dwindle to nothing.
Heh. I always assumed that the name of the currency, real, has the meaning "royal". Instead, it's literally the same as the English word. What an interesting story.
Have any other governments suffering from high inflation tried this?
Instead of calling it a fictional unit, they could also just use an existing currency like the euro for the transitional period, then switch to a new national currency that has an initial exchange rate of 1:1 against the euro. (I'm picking the euro because it has a fairly neutral image, with over 20 countries using it already.)
> use an existing currency like the euro ... [which] has a fairly neutral image ....
Opposition politicians looking for ammunition to attack the plan -- correction: looking for ammunition to attack the incumbents; they might have had little interest in attacking the plan otherwise -- would denounce the insult to national sovereignty.
That's surely why Brazil called it the URV - unit of real value - instead of admitting that in effect they repriced in Yanqui imperialist dollars. That's not in the linked NPR transcript but was mentioned in the longer NPR Planet Money podcast, linked at the bottom of the transcript.
You are correct that 'real' means royal but it also means true or authentic (similarly in English).
I think that probably more accurately describes their intention behind the meaning of the name.
When I lived in Brazil in the 1990's, shortly after the currency changed from Cruzeiros to reais, the exchange rate was around 1.5. Today, it's 1.69 - there have been some relatively mild fluctuations since then but it has stayed remarkably stable.
Exactly - Brazil's history and relationship with Portugal bear little resemblance to the USA's relationship with the UK. Brazilians in general are, if not proud, then at least amused by their country's royal history, and most major Brazilian cities have streets named after famous royals.
I believe Germany did in the late 1930s but for other reasons the Reichmark didn't quite end up as the world currency they wee hoping for.
You can decide to peg your currency against a more stable one eg west Africa and the French Franc - but unless the owners of the hard currency have some political reason to support your then you have to persuade the world's traders that you flobble-bead is actually worth a Euro.
Germany did introduce the Rentenmark to replace the Paper-Reichsmark in the mid-twenties to stop hyperinflation. (Later on they--essentially--reverted the name of the currency back to Reichsmark.)
There was no hyperinflation in the 30s. The early thirties saw depression and deflation. This Weltwirtschaftskrise lasted longer in the US than in Germany and is known as the Great Depression, there. The crisis contributed to the rise of Nazism in Germany, though.
Yes, there was hyperinflation in the early 20s, but _not_ in the 30s. (See http://en.wikipedia.org/wiki/1920s_German_inflation for some information in English. If you speak German, or can live with Google translate, then there's lots more material available.)
Anyway, there wasn't much Weimar Republic to go around in the 30s. It ended in '33 with the Nazis coming to power. (The term Weimar Republic is just a name historians have made up for that period. Officially Germany was called Deutsches Reich from 1871 until 1945.)
Sorry, I am just a bit annoyed, because I have heard people make this very mistake more than once. I guess I am equally ignorant about, say, Chinese or Vietnamese history.
Sorry, I had thought the hyperinflation + general chaos led directly to the rather unpleasant party seizing power in 1933 and so assumed the bad times were immediately before then (ie 1930-1933). Hadn't realised they were actually a decade earlier.
I've been wondering - how do they keep the civil service and army moving now? They were using inflation to pay for this. Having lost that ability, what are they doing instead?
Anyone here who experienced post-Soviet currency collapses would instantly remember prices in У.Е. ("convention unit", in reality a legal way to put U.S. dollar price tag), monthly re-indexed МРОТ ("salary unit"), and so on. Alone they did not help anything, until economy and fiscal policies fundamentally changed.
Hyperinflation is primary caused by government printing money right? So if switching to another currency helped stop this...I get how it could help people changing their perceptions, but wouldn't the root cause be that the government stopped printing money with the new currency?
It seems like it would have been almost as effective if they had simply stopped printing more of the original currency until things stabilized?
Maybe I'm missing something. But the article seems to put too much weight on this clever idea of shifting to a new currency. While if monetary policy had stayed the same with the new currency I don't think it would have made any difference. The monetary policy here was the important part, not the new currency.
I had the same question. The Wikipedia article on the URV lead me to "Inertial inflation."
In the medium-to-long term, economic agents begin to forecast inflation and to use those forecasts as de facto price indexes that can trigger price adjustments before the actual price indices are made known to the public. This cycle of forecast-price adjustment-forecast closes itself in the form of a feedback loop and inflation indices get beyond control since current inflation becomes the basis for future inflation (more formally, economic agents start to adjust prices solely based on their expectations of future inflation). At worst, inflation tends to grow exponentially (leading to hyperinflation).
Interesting, thanks for posting that (it is probably what the author is basing it on)...although it's probably more accurate to call this one theory of how it could happen.
The reasoning behind it doesn't fully make sense to me.
Simple reason: people spending money as fast as they can (the shot in the arm that can accelerate hyperinflation) has a natural limit: when people have no more savings! So I don't think it's correct to call this a positive feedback loop. It has a natural limit that could be reached quite quickly under hyperinflation.
Indexes can only takes things so far too - if you (as a business owner) follow them and nobody can afford your products, you'll quickly figure it out and drop prices. So it seems weird to say indexes could cause hyperinflation over any medium-long time frame.
In Yugoslavia in nineties during the big hyperinflation everybody was calculating the prices in German Marks, still hyperinflation progressed until the specific political decisions happened. I also consider the article as such an oversimplification that the real insight is actually lost.
I think you can solve that, to some degree, with a cache (if it's performance that's troubling you) or a simplified facade (if it's the complexity of the deep stack).
All money is of course "fake" in that it only has value if people believe that it does. Economics could be thought of as a branch of psychology, with "real value" being connected to the transient and sometimes hard to quantify needs, wants and desires of people.
Great rule, should be the very first thing taught in high school when you get to exponents.
Dr. Albert Bartlet of University of Colorado has an excellent lecture on its implications for population growth, environmental degradation, and other big picture problems:
Funny you mention that "rule". It's not very accurate, and becomes less accurate the higher the inflation/interest rate goes.
I just worked it out; at 80% inflation it would take 1.18 months to double, not 0.9 like the rule of 72 would suggest. That's a fair difference, and certainly more in line with intuitive expectation.
Not that the OP isn't being overly finicky. Both round to 1, and only one significant digit was given anyway. But still.
I just listened to this story on the radio and I distinctly heard them say "about $2 a month later". This could just be a transcription error, as it was produced for radio first.
I think you need to listen to the audio podcast version before you disparage the style of exposition they use.
The Planet Money folk unashamedly try and explain economic current affairs and stories as simply as possible. It's essentially their self professed raison d'être and they do a good job of it.
Quibbling about the the accuracy of their simplified examples is missing the trees and the forest.
You're welcome for the layup opportunity to score some easy points.
This serves as a good reminder that you will be swiftly punished on HN for making a comment that doesn't add value.
In my defense, I didn't miss the trees and the forest. I was merely pointing out that the story was dumbed down, as you put it, "as simply as possible." And replying to a post pointing out their overly simplified math. Seriously, implying that 1 x 1.8 = 2 isn't even back-of-the-envelop close.
However I did enjoy learning about how the Real came to be.
Hopefully the U.S. won't ever have to deal with this type of issue (out of control inflation). I'm very surprised that inflation hasn't hit the U.S. yet in a big way, but from what I hear that is because China and the U.S. are buying U.S. treasury bonds in a big way.
Leaving aside the oh-shit-we-are-all-fucked scenarios (ie, collapse of trust in the US currency or maybe another 70's era oil shock) what on earth could cause inflation at the moment?
Sure, your interest rates are low, but domestic demand levels are so low that everyone are desperately cutting prices to try and create some demand. Combine that with very high unemployment and it's simply not a high inflation environment.
I'd be more worried about deflation than inflation at the moment.
Adding more currency without backing is a sure way to cause inflation, I hear. How they've been avoiding this is by China and then the U.S. sinking money into U.S. Treasury bonds, I hear also. When the U.S. makes claims that the economy is not good (which they've done quite a bit), I wonder if they are trying to influence investors to invest in these bonds rather than stocks, or if they were really trying to warn us that something bad is coming. Either way, as a consumer, I'm worried.
but the big problem for you guys is: it's expected that China holds something around 1 trillion of the US GDP in treasury bonds. So whenever they feel the US economy isn't trustworthy anymore, selling these will hit like a train.
their growth rate is really high right now, so it's a delicate situation.
The problem is not even in selling. They would need someone to sell to. Once China stops buying it will be the beginning of the spiral down in the prices of US bonds.
China is the only emerging market that needs the US economy going and for the American consumer to keep its purchasing power. China can only stop buying when their domestic market gets big enough to sustain the hit that it will eventually come.
The Chinese can't stop buying bonds if they want to keep their currency depressed relative to the dollar. Moreover, they have no intention of stopping the gravy train - tanking the US economy (further) would only hurt their own largest market, and no other large market is as willing to accept one-sided trade and currency policies as the US.
The Fed bought up 1 trillion in mortgage debt and no one blinked -- that is why mortgage rates are 4%. If China started dumping their T bills the Fed would just buy them up. It wouldn't hit like a train -- more like a tricycle.
But the U.S. can't do that forever without inflation, because they either have to cut spending (which wouldn't happen due to fears it might affect unemployment and the economy), raise taxes (same deal, and is even more of a political mess), or print money. Printing money in bulk over and over leads to inflation. Inflation causes people to slow spending.
They are printing money to directly manage interest rates and indirectly manage inflation. If the Chinese liquidate the debt they own, the Fed printed money to buy the debt, and Chinese spent the money employing americans eventually that might cause wage inflation. That process seems slow enough that inflation would be no big deal to manage.
There's no such thing are fake money, only false promises. Money is debt on the side of the government. Fake money therefore, is debt that the government defaults on.
wonderful article.. I really love it :) it raises lots of question how this is possible, how many people get impacted.. Anybody did any significant financial loss?? or few people know about this able to take any benefit?? but this is definitely a bold decision and executed well towards result..
Inflation is a useful tactic to make RPG style games addictive.
I worked with someone who built a popular facebook RPG game, and part of what made it popular was that as you became an established player the amount earned per day rose exponentially. As the game became more and more popular the virtual economy started to hyperinflate almost out of control, and the established players started hitting the MySQL integer limits. The author never expected that would ever be possible, but the exponential rate of inflation plus the exponential rate of new players joining created a giant pyramid scheme.
Good story, reminds me of a favorite quotation: The greatest shortcoming of the human race is our inability to understand the exponential function. — Albert Bartlett
It's a matter of governement control (assuming your are not connected to the outside world/Internet and don't have, therefore, a real-time currency update).
Let's assume gov. X, printed an additional $3bn. Will prices increase? No, they won't. The gov. can use this money, to do things, like building roads, schools... These expenses has to be considered as investments; if roads are built, industry will benefit and exports will increase lowering the inflation that the gov. had already made.
So the gov. can print as much papers as they want. It's paper in the end. But the ROI of the money they spent/printed, is going to decide if inflation will happen or not (in the future).
If inflation is spiking, it means the gov. lost control over the banking sector and a new currency needs to be made to return confidence to people and companies.
The government could do things like building roads, but they are usually just using that extra paper to pay off their debts, which makes investors demand a higher interest rate to hold the debt, which leads to a vicious cycle. Inflation is caused by the speed of money creation exceeding the speed of creation of real value, and the banking sector is not the only actor in the money creation process.
Not really. Brazil's inflation had an extra factor helping it: lots of prices (as well as salaries) were automatically revalued by "triggers". The plan wouldn't have worked if the government hadn't also dropped all these mechanisms.
* The "finance minister who knew nothing about economics" was actually a very respected sociologist, a senator and a very intelligent and skilled politician. He later became known as president Fernando Henrique Cardoso. I.M.O. one of the best 3 presidents this country had.
* What Edmar Bacha, Pedro Malan and others did was to break inflation's inertia/momentum. A lot of people already knew it was necessary; but no one else knew how to do it.
* The article doesn't comment on the strict and cautious monetary policy implemented by Fernando Cardoso. It was as much important as the "fake money" trick.
* Big inflation was a huge tax on the poorest people. Because they were poor, they didn't have the knowledge and means to protect against rising prices. It is because inflation ended that they began consuming more and the country increased their internal markets.
[Edit]Wikipedia has a more comprehensive explanation about what we call here Plano Real : http://en.wikipedia.org/wiki/Plano_real [/Edit]