Breakaway Currencies

We’ve explored nine different scenarios in which we’ve imagined a region has decided to create a new currency. Read more about breakaway currencies or select another scenario from the list below to view in more detail.

In collaboration with Dr Robert Hancké of the London School of Economics, the UK’s No. 1 retail forex provider,1 IG, has considered...

What happens if São Paulo leaves the Brazilian real and creates its own currency?

Breakaway region São Paulo

Parent country Brazil

Old currency Brazilian Real (BRL)

New currency São Paulo Real

São Paulo map image

An independent currency would pave the way for São Paulo to increase its exports, but would that come at the cost of political stability in Brazil?

Why might the State of São Paulo create its own currency?

  • It could make its exports more competitive
  • It could gain macroeconomic stability
  • An autonomous fiscal policy could counter perceived fiscal imbalances

Why is São Paulo’s position strong?

  • As the main centre for services and finance, it is the most economically important region in Brazil
  • But it also has a heavy reliance on exports of sophisticated manufacturing
Top 5 states by value of exports 2014 (USD billions)   source
São Paulo
Minas Gerais
Rio de Janeiro
Rio Grande do Sul
Soybeans are one of São Paulo’s biggest exports. (photo: Tiago Fioreze / Wikimedia CC BY-SA 3.0)

What could happen... São Paulo?

Goods produced in the state of São Paulo could be sold more competitively if the new currency depreciates

Consequently, rising exports and monetary stability could lead to higher economic growth Brazil?

Brazil would instantly be considerably poorer, with a massive dent in its trade balance

The Brazilian real could instantly come under pressure

This might produce a recession if the central bank attempts to fend off speculative attacks

Currency background

Change in value of Brazilian real (BRL) since 2000, based on SDRs per currency unit   source

Change in value of Brazilian real (BRL) since 2000

Dr Robert Hancké

“The benefits of monetary independence are mixed, but a breakaway currency could certainly benefit the State of São Paulo by introducing monetary stability.”

What would the political impacts be?

Monetary secession of the strongest region might produce similar centrifugal forces elsewhere in the country

The Brazilian federation might collapse entirely

Would the pros outweigh the cons?

Depending on the initial exchange rate, a new currency could lead to a temporary jump in competitiveness

However, given that the Brazilian real is a relatively soft currency today (it lost 50% of its value between 2000 and 2018), the export gains would not be large compared to the current situation

A stronger currency might actually be counterproductive

Dr Robert Hancké is an Associate Professor of Political Economy at the London School of Economics. His research interests include the political economy of advanced capitalist societies and transition economies as well as macroeconomic policy and labour relations.

Choose another breakaway currency

World map