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Brazil’s Central Bank to launch new BRL 200 bill. What changes?

. Jul 31, 2020
new currency bill brazil central bank Image: André Chiavassa/TBR

The Brazilian Central Bank announced this week that it would create a new BRL 200 (USD 39) bill, to be launched in late August. The decision comes amid a rise in the use of printed currency, despite the potential sanitary risks this may pose vis a vis Covid-19 contamination. In fact, the pandemic has boosted cash use, as Brazilians are seeking to stockpile money as emergency savings in response to economic uncertainties.

The bank plans to request an initial budget of BRL 113.4 million from the National Monetary Council (CMN) to print the first 450 million units of the new note, totaling BRL 9 billion to be slowly introduced in the market over the remainder of 2020. 

</p> <p>The move caught many by surprise, as it goes in the opposite direction to decisions taken in other parts of the world. In South Korea, for instance, authorities literally burned cash and took custody of banknotes as a precautionary measure against Covid-19 transmission. Moreover, the Central Bank itself has been pushing toward <a href="https://business.ebanx.com/en/resources/payments-explained/pix-instant-payment-system-central-bank-of-brazil">digitizing transactions</a> in Brazil. But, as reporter Natália Scalzaretto explained in our <a href="https://brazilian.report/tech/2020/07/10/tech-roundup-brazil-ready-ditch-printed-money/">July 10 Tech Roundup</a>, the amount of banknotes circulating in Brazil peaked to a record 8 billion bills during the pandemic — despite hygiene issues.</p> <p>There are two main reasons for this increase in notes: (1) the BRL 600 coronavirus emergency salary forced the Brazilian Mint to print an extra BRL 9 billion in May; (2) people didn’t have anywhere to use their physical money — as most shops were closed.</p> <p>According to the Central Bank, the total value of Brazilian Real bills circulating in March totaled BRL 216 billion. This figure has now reached BRL 277 billion in July, a BRL 61-billion jump in physical currency usage over only four months, the highest increase since the currency was launched in 1994.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3346946" data-url="https://flo.uri.sh/visualisation/3346946/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p>Another factor that could partly explain this surge in physical currency use among Brazilians was the introduction of the <a href="https://brazilian.report/newsletters/brazil-daily/2020/03/27/brazil-to-pay-emergency-salary-to-informal-workers/">federal government’s emergency salary</a>, which provided BRL 600 monthly installments to low-income families and informal workers to weather the financial impacts of the Covid-19 pandemic.&nbsp;&nbsp;</p> <p>“The Central Bank believes that the amount of physical currency circulating in the market is adequate to <a href="https://www.youtube.com/watch?v=cq_UiEkBx-E">meet the various needs</a> of the Brazilian population … [Yet,] we observed a trend of currency hoarding brought on by the pandemic, and we do not know how long it will last,” said Central Bank Deputy Governor for Administration <a href="https://www.bcb.gov.br/en/legacy?url=https:%2F%2Fwww.bcb.gov.br%2Fpre%2Fquemequem%2Fingl%2Fcarolinadeassis-i.asp%3Fidpai%3Dwho">Carolina Barros</a>.&nbsp;</p> <p>“Therefore, given the effects of cash stockpiling and the importance of the physical currency to our society, as cash transactions are still the basis of the Brazilian economy, the Central Bank believes it is an opportune moment to launch the BRL 200 bill. This is a preexisting project and the Central Bank is acting preemptively to meet a possible [further] increase in demand by the Brazilian population for cash money.”</p> <h2>Economic impacts of the BRL 200 bill&nbsp;</h2> <p>Despite initial fears from sections of the population that the introduction of a higher-valued bill could lead to an increase in inflation rates or a devaluation of the Real abroad, the new bill is expected to be introduced seamlessly into the economy with no major ripple effects. The BRL 200 bill will, however, make foreign exchange transactions easier for both Brazilians and international travelers, as currency exchange can be made both ways using fewer banknotes. Now, Brazil’s single highest-valued bill will be worth roughly USD 39 instead of the previous highest-valued bill (BRL 100) that is currently traded for USD 19.40.&nbsp;</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3346921" data-url="https://flo.uri.sh/visualisation/3346921/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p>Yet, internally, this might create newer challenges for day-to-day cash transactions, as many Brazilian businesses do not operate or charge at such a higher value.&nbsp;&nbsp;</p> <p>“[The release of this new bill] can go very much in the sense of modernizing, and making the Real bill more comparable in relation to world economies that also use a higher-valued currency,” says Agostinho Paschalicchio, economics professor at Mackenzie Presbyterian University.</p> <p>“On the flip side, what about [change]? How do you provide change for such a high-valued bill? It poses a challenge to the practical use of it. How are you going to use a BRL 200 bill when businesses already find it difficult to provide change, for example, to the BRL 100 bill here in Brazil? Thus, it is possible that additional bills would be created between BRL 100 and 200 by the Central Bank when pondering how to address this issue in the future,” Mr. Paschalicchio tells <strong>The Brazilian Report</strong>.</p> <h2>A new bill in the age of e-commerce&nbsp;&nbsp;</h2> <p>As businesses worldwide seem to be slowly shifting to digital, cashless transactions, introducing a new bill in the market might sound counterintuitive, even if to address recent demands for higher cash circulation.&nbsp;</p> <p>Yet, the new addition is not expected to take away from the growing e-commerce industry in Brazil that has seen a sizable spike in transactions during the Covid-19 pandemic.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3138802" data-url="https://flo.uri.sh/visualisation/3138802/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p>&nbsp;“[The BRL 200 bill] does not hinder the policies and strategies for e-commerce payments. It is believed that they are two different segments,” Mr. Paschalicchio said. While for e-commerce you have more often demand deposits [turned into digital values], which is also a high liquidity asset much like in-cash money, it does not directly compete with the current volume of cash circulating in the market.”</p> <p>But the amount of <a href="https://www.poder360.com.br/economia/circulacao-de-dinheiro-em-especie-aumenta-durante-pandemia-diz-estudo/">physical money circulating in Brazil</a> grew from 8 to 24 percent of the country’s GDP after the pandemic — and e-commerce activity <a href="https://brazilian.report/coronavirus-brazil-live-blog/2020/05/05/e-commerce-sees-double-digit-growth-during-pandemic/">steadily grew</a> in the same time frame, suggesting that both activities are not mutually exclusive.&nbsp;</p> <p>As per <a href="https://brazilian.report/business/2019/07/01/brazil-longest-lasting-currency-real/">tradition on all Brazilian Real bills</a>, the new note will bear the image of an animal typical of Brazil&#8217;s fauna. In this case, it will be the maned wolf, the largest canid in South America that is traditionally found in the Brazilian Cerrado, looking like a cross between fox, wolf, and deer. No images of the new bill are available yet, due to security reasons.

 
Rafael Lima

Rafael is a Communication student at Wake Forest University, and a student fellow of the Pulitzer Center on Crisis Reporting.

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