Unidade Real de Valor
Encyclopedia
The Unidade Real de Valor, or URV (Portuguese, Real Value Unit), was a non-monetary reference currency (i.e., non-fiat
) created in March 1994, as part of the Plano Real
in Brazil
. It was the most theoretically sophisticated piece of the Plano Real and was based on a previous academic work by Pérsio Arida
and André Lara Resende, the "Plano Larida", published in 1984.
Its main purpose was to establish a parallel currency
to the cruzeiro real, free from the effects of inertial inflation
on the latter, which exceeded 1,200% per year prior to the implementation of the new currency, the real
.
It was conceived as a temporary instrument to break up the "psychological inertia" that had ingrained in the Brazilian mindset, and which caused prices to keep rising as a consequence of subjective estimation of inflation or preemptive adjustment without cost assessment. These phenomena are among the chief characteristics of hyperinflation
, resulting from the erosion of confidence on the legal tender
. The idea was to let the old currency (the cruzeiro real) fully absorb the effects of hyperinflation
while having a new currency to be stable (in nominal terms) by adjusting its exchange rate
against the old one.
URVs were quoted in cruzeiros reais and its intrinsic value was pegged to three price indices
and had a fixed parity
of 1-to-1 to the U.S. dollar
. The exchange rate
of URVs to cruzeiros reais was recalculated and published daily by the government.
Price
s were quoted both in URVs and cruzeiros reais but payments had to be made exclusively in cruzeiros reais, since the URV would not become legal tender until July 1, 1994. For instance, banks were required to report balances on accounts in both currencies and contracts had to be rewritten to express prices in URVs.
The URV was extinguished on July 1, 1994, when it was converted to a new currency, the real
at a parity (i.e., 1 real = 1 URV = CR$ 2,750), effectively breaking the hyperinflationary cycle, bringing stability to the Brazilian currency.
The implementation of the new currency was one of the greatest currency changes in known history, with almost the entirety of the country's legal tender replaced in about 45 days.
Fiat money
Fiat money is money that has value only because of government regulation or law. The term derives from the Latin fiat, meaning "let it be done", as such money is established by government decree. Where fiat money is used as currency, the term fiat currency is used.Fiat money originated in 11th...
) created in March 1994, as part of the Plano Real
Plano Real
The Plano Real was a set of measures taken to stabilize the Brazilian economy in early 1994, under the direction of Fernando Henrique Cardoso as the Minister of Finance, during the presidency of Itamar Franco....
in Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
. It was the most theoretically sophisticated piece of the Plano Real and was based on a previous academic work by Pérsio Arida
Pérsio Arida
Pérsio Arida is a Brazilian economist.In the 1970s, he was a part of the student activist movement in Brazil, being arrested and tortured....
and André Lara Resende, the "Plano Larida", published in 1984.
Its main purpose was to establish a parallel currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
to the cruzeiro real, free from the effects of inertial inflation
Inertial inflation
Inertial inflation is a concept coined by structuralist inflation theorists. It refers to a situation where all prices in an economy are continuously adjusted with relation to a price index by force of contracts....
on the latter, which exceeded 1,200% per year prior to the implementation of the new currency, the real
Brazilian real
The real is the present-day currency of Brazil. Its sign is R$ and its ISO code is BRL. It is subdivided into 100 centavos ....
.
It was conceived as a temporary instrument to break up the "psychological inertia" that had ingrained in the Brazilian mindset, and which caused prices to keep rising as a consequence of subjective estimation of inflation or preemptive adjustment without cost assessment. These phenomena are among the chief characteristics of hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...
, resulting from the erosion of confidence on the legal tender
Legal tender
Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency is a common form of legal tender in many countries....
. The idea was to let the old currency (the cruzeiro real) fully absorb the effects of hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...
while having a new currency to be stable (in nominal terms) by adjusting its exchange rate
Exchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
against the old one.
URVs were quoted in cruzeiros reais and its intrinsic value was pegged to three price indices
Price index
A price index is a normalized average of prices for a given class of goods or services in a given region, during a given interval of time...
and had a fixed parity
Exchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
of 1-to-1 to the U.S. dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
. The exchange rate
Exchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
of URVs to cruzeiros reais was recalculated and published daily by the government.
Price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
s were quoted both in URVs and cruzeiros reais but payments had to be made exclusively in cruzeiros reais, since the URV would not become legal tender until July 1, 1994. For instance, banks were required to report balances on accounts in both currencies and contracts had to be rewritten to express prices in URVs.
The URV was extinguished on July 1, 1994, when it was converted to a new currency, the real
Brazilian real
The real is the present-day currency of Brazil. Its sign is R$ and its ISO code is BRL. It is subdivided into 100 centavos ....
at a parity (i.e., 1 real = 1 URV = CR$ 2,750), effectively breaking the hyperinflationary cycle, bringing stability to the Brazilian currency.
The implementation of the new currency was one of the greatest currency changes in known history, with almost the entirety of the country's legal tender replaced in about 45 days.