Question

In Brazil, a country that underwent a rapid inflation before 1994, many transactions were conducted in dollars rather than in reals, the domestic currency. Why?

Short answer

People will hold the currency that has good store of value and is stable in international market.

Step-by-step solution

Step 1. Introduction

Inflation is the charge of growth in charges over a given duration of time. Inflation is normally a extensive measure, inclusive of the general growth in charges or the growth with inside the price of residing in a country.

Step 2. Explanation

Brazil's indigenous currency, the real, was a poor store of value due to rampant inflation. As a result, many people preferred to have dollars in their possession, as they were a more reliable store of value, and to use them in their everyday transactions.