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April 22, 1994


By CBR Staff Writer

Brazil is famous for coffee, Formula One racing drivers, the Bossa Nova, the Amazon rain forest, Mardi Gras, in all of which it can take pride – and inflation, which is a cause of shame, and more importantly, pain. Inflation is currently running at 43% a month, and several drastic measures to curb it have been tried and have failed. Undaunted, the government is trying again, this time by establishing a Real Value Unit, a wage and price index tied to the American dollar, intended to become the basis of a new currency. Most retailers have said they would convert to the new Unit only after public rates, such as those set by utilities, have made the switch, and the monopoly state phone company Telebras is leading the way. It announced that it will convert its rates by early next month to the new Unit, abandoning Brazil’s national currency, the cruzeiro real. It is looking at setting initial Real Value Unit rates at the average of the last four months under the discredited cruzeiro. The Real Value Unit is linked to the performance of the cruzeiro real against the dollar and it is intended that all salaries should be adjusted to it monthly; all new contracts are also to be written in it, and will then not be adjusted for a year.

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