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Playing Monopoly with the DevilDollarization and Domestic Currencies in Developing Countries$
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Manuel Hinds

Print publication date: 2006

Print ISBN-13: 9780300113303

Published to Yale Scholarship Online: October 2013

DOI: 10.12987/yale/9780300113303.001.0001

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The Costs of Stability

The Costs of Stability

Chapter:
(p.82) Chapter 4 The Costs of Stability
Source:
Playing Monopoly with the Devil
Author(s):

Manuel Hinds

Publisher:
Yale University Press
DOI:10.12987/yale/9780300113303.003.0005

This chapter focuses on the issue of currency stability by analyzing the economy of Brazil. It discusses how the instability in Brazil is largely attributable to the increasing complexity of the monetary quagmire that the government has created to keep its currency stable. If the interest rates that the government pays were close to the international levels, the fiscal deficits would disappear. Since they are so high, the government has a deficit. Then, the deficits lead to the need to print money to finance the government, and money printing creates the need to devalue the currency. The analysis presented in the chapter shows that the costs of keeping Brazil's monetary independence, in the sense of severing the linkage between devaluation and inflation, are staggering. Rather than freeing the country from the external environment, the monetary system has trapped it in a vicious circle of dependence on international capital flows.

Keywords:   currency stability, economy of Brazil, monetary quagmire, fiscal deficits, money printing

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