Historical Sketch

Portugal was created in the 9th century as a fief to the kingdoms of Asturias and later León. In the 12th century, it attained independence on the battlefield. The succession crisis of 1580 led to another 60 years of personal union with Spain, which was terminated following the Portuguese Restoration War and the accession of the House of Braganza to the Portuguese throne. Since the 15th century, Portugal had sent out navigators to the World, in competition with Spain, and established trade posts and colonies. As a consequence of the Treaty of Tordesillas, which partitioned the World between the two colonial powers, Portugal obtained authority over the eastern part of South America, the colony of Brazil. During time, Brazil's importance increased, and during the Napoleonic Wars, first the Portuguese throne relocated there, then the United Kingdom of Portugal-Brazil got proclaimed in 1815. A couple of years later, Brazil broke away from Portugal. The Portuguese monarchy remained until the 1910 revolution, when it had to give way to the Portuguese Republic. The colonial empire in Africa and India gradually dissolved in the mid-20th century when uprisings began in the different colonies. In Africa, only the Portuguese revolution of 1974 finally put an end to the colonial warfare.

Monetary History Overview

Portuguese accounting was traditionally done in the 1st Portuguese Real which originated in a 13th century silver coin but, through debasing over the centuries, had turned into a minuscule unit. The value of the precious metals against the unit of account was lowered by 20% in 1688 and new gold coins (like the "Peça" of 6400 Real) were created in 1722. The gold-to-silver ratio was lowered in 1747, although the Real was not strictly a bimetallic standard. The Peça gained world-wide significance in long-distance trade, in particular in the Caribbean where it went under the name "Joe" (after the Portuguese king João IV). In 1822, the valuation of the Peça was raised to 7500 Real such that the gold-to silver ratio was significantly lower than in neighbouring countries, which made the Real an effective gold currency. In 1835, coinage was modernized comprehensively to get away with a coinage at "odd numbers" when expressed in terms of the unit of account. New "decimal" coins should be issued with denominations in simple multiples of the Real since the population was used to calculate in "milreis" (= 1000 Real) and "conto" (= 100 thousand Real), anyway. The 2nd Portuguese Milreis was a bimetallic currency with a gold-to-silver ratio close to the French one. New base gold coins with name "Crown" were created, oddly enough defined as 5 Milreis in gold and 1 Milreis in silver. The currency law, as well as the circulating coins and banknotes, however, did not use "Milreis" as denominations but kept the large numbers. In 1847, the gold-to silver ratio was raised and in 1854, bimetallism was abandoned for good. The Milreis switched to the British gold standard, and British gold coins also became legal tender. State paper issuance had already begun in the late 18th century, and in 1847, the Bank of Portugal took over the central bank role. In 1850, a number of commercial banks had obtained an issuance privilege. By 1891, paper money had come to dominate the circulating medium. The gold standard had to be suspended, and private money issuance was abolished at the same time. Nevertheless, the gold peg could never be restored for real. In 1910, the Portuguese monarchy was overthrown, and the new republican government renamed the Milreis into Portuguese Escudo. The currency law of May 1911 established a gold currency in the standard of 1854. This could not be implemented and was formally abandoned in 1914. In a crisis of the early 1920, the Escudo lost more than 90% of its value, and stabilization was achieved only in 1931 when the Escudo pegged to the Pound Sterling, which also meant a nominal return to the gold standard for a couple of months. After the outbreak of the Second World War the Escudo repegged to the US Dollar in 1939. This remained so until 1973, and the parity was only slightly revised throughout the next decades. After the Dollar devaluation in 1973, the Escudo's exchange rate was nominally floated, but the artificial overvaluation remained until the revolution of 1974. The exchange policy was liberalized as Portugal approached the European Community, and the Escudo lost 85% of its value during the next decade. In the mid-1980, Portugal joined the European currency system, which led to a stabilization of both economy and currency. Portugal is a founding member of the European Monetary Union and has introduced the European Euro in 1999. The Portuguese banknotes and coins were withdrawn in 2002.

The two island regions of the Azores and Madeira had developed a local accounting unit due to the lack of exchange with the mainland although they formally were part of the Portuguese currency area. In Madeira the integration was done in 1879 and meant a redenomination by 6.25%. The Azores kept their different accounting much longer. In 1932, a year after the Portuguese currency reform, all accounts were redenominated by 20%, and Portugal achieved the unification of its accounting system.

Portugal joined the International Monetary Fund (IMF) on 29.03.1961.

Currency Units Timeline

Currency Institutes Timeline

Monetary History Sources