From the monetary reform of July 1994 until January 1999 Brazil
followed the policy of pegging the new currency (the real) to the US
dollar. The central rate was initially fixed at 1[ratio ]1 to the US dollar, but no
fluctuation band was set and the market rate was allowed to fluctuate
substantially. After a sharp appreciation of up to 15 per cent the real
remained at a premium to the dollar for two years (until June 1996). In
March 1995, following the Mexican crisis, the Banco Central do Brasil
adopted a crawling band without preannounced depreciations. This
change in policy was meant to increase somewhat the flexibility of the
exchange rate regime while still maintaining an anchor for inflationary
expectations. The market rate depreciated by 13.9 per cent in the course
of 1995 (December 1995 on December 1994), 7.1 per cent in 1996, 7.3 per
cent in 1997 and 8.3 per cent in 1998. By December 1998 it had reached
1.2054 to the US dollar, a depreciation of only 20 per cent with respect to
the central rate fixed at the end of the hyperinflation but about 40 per cent
with respect to the rate prevailing in July 1994.