macroeconomic miracle or mirage?

This dissertation revisits Brazil's experience with multiple exchange rates (MERs) between 1953 and 1961. Exchange controls such as MERs were common across the world during the early days of the Bretton Woods arrangement, despite the resistance from the International Monetary Fund (IMF), which assumed they caused instability and balance of payments crises. Latin America’s use of exchange controls was widespread, with different exchange rates also adopted as instruments to stimulate import substitution industrialization (ISI). Brazil’s MER system was, however, a unique experiment, with all the country’s imports included in a regime of auctions of foreign exchange, resulting in a controlled depreciation process with different sectoral exchange rates. The experience had two phases, the first of which diverged from other cases in the region in lasting much longer, maintaining stable macroeconomic conditions, and avoiding IMF interventions. The second phase resulted in a decline of the system's macroeconomic effectiveness and its eventual collapse in 1961. This research investigates the peak and decline of Brazil’s MER systems by analyzing a new quantitative dataset that is further complemented by qualitative sources. The main thesis is that Brazil’s MER regime was a ‘successful’ experience during its first phase, with a singular design that supported the stabilization of macroeconomic conditions. Officials were ‘guiding the invisible hand’ of the market to help balance macroeconomic variables. The dissertation also shows that the MER system was not a protectionist instrument to stimulate import substitution in advanced sectors and did not generate distortions to sectoral industrial growth. It was, however, transformed during its second phase into a mechanism to subsidize private sector imports and increase the government’s direct participation in the industrial effort, which was an industrial deepening process with costly macroeconomic consequences.