Economic History of Portugal - The Portuguese Republic

The Portuguese Republic

On 1 February 1908, King Carlos I was assassinated while travelling to Lisbon. Manuel II became the new king, but was eventually overthrown during the revolution on 5 October 1910, which abolished the monarchy and instated republicanism.

Along with new national symbols, a new currency was adopted. The "escudo" was introduced on 22 May 1911 to replace the real (Portuguese for "royal"), at the rate of 1,000 réis to 1 escudo. The escudo's value was initially set at 4$50 escudos = 1 pound sterling, but after 1914 its value fell, being fixed in 1928 at 108$25 to the pound. This was altered to 110$00 escudos to the pound in 1931.

Portugal's First Republic (1910–26) became, in the words of historian Douglas L. Wheeler, "midwife to Europe's longest surviving authoritarian system". Under the sixteen-year parliamentary regime of the republic, with its forty-five governments, growing fiscal deficits, financed by money creation and foreign borrowing, climaxed in hyper-inflation and a moratorium on Portugal's external debt service. The cost of living around 1926 was thirty times higher than what it had been in 1914. Fiscal imprudence and accelerating inflation gave way to massive capital flight, crippling domestic investment. Burgeoning public sector employment during the First Republic was accompanied by a perverse shrinkage in the share of the industrial labor force in total employment. Although some headway was made toward increasing the level of literacy, 68.1 percent of Portugal's population was still classified as illiterate by the 1930 census.