The Encilhamento was an economic bubble that boomed in the late 1880s and early 1890s in Brazil, bursting during the early years of the First Brazilian Republic (1889–1894) and leading to an institutional and a financial crisis. Two Finance Ministers, first the Viscount of Ouro Preto and then Ruy Barbosa, adopted a policy of unrestricted credit for industrial investments, backed by an abundant issuance of money, in order to encourage Brazil's industrialization. This policy of economic incentives created unbridled speculation and increased inflation, and encouraged fraudulent initial public offerings (IPOs) and takeovers.

The word "encilhamento", literally "saddling-up", the act of girthing or mounting a horse, was a term borrowed from horse racing and used to refer to the speculative practice of seizing get-rich-quick opportunities whenever they unfold, in an analogy based on the popular Brazilian saying "An unmounted saddled horse doesn't appear twice."

Throughout the 19th century the maturation of technological innovations, especially the development of rail transport, gas lighting and steamships, among others, all linked to the process of industrialization, created opportunities for large speculative movements, leading to an acceleration of the flow of capital in the world.

In spite of the considerable volume of native capital being released with the abolition of the slave trade in 1850 – at the same time when the Baron of Mauá was laying the foundations of the modern banking system in Brazil – decades later at beginning of the Republic, the Brazilian economy was still being held back by, amongst other things, restrictive economic legislation – notably the "Land Law" of 1850 and the "Barriers Act" of 1860, which inhibited the access to land ownership by former slaves and immigrants at a time where agriculture was economically predominant in the country, and curbed for decades the development of Brazilian financial markets, with them having become at that time, a kind of "notary oligopoly" under the control of few families.

Proposed changes in land legislation were one of the reasons why large landowners and former slaveholders supported the establishment of the republic. In this political, economic and social environment, under the pretext of promoting the industrialization of the country, occurred the Encilhamento.

The first step that led to the Encilhamento took place during the final years of the Empire of Brazil under the command of Viscount of Ouro Preto, the last finance minister of the imperial era, when a new Banking Act was enacted in November 1888. The Rio de Janeiro Stock Exchange, which had already boomed in 1886, had accelerated with the abolition of slavery two years later and again with the measures implemented by the new banking law (that reversed the 1860 "Barriers Act"), and again by the proposed changes for the Land and Real Estate laws in 1889. Along with the increase in market liquidity, there was the introduction of modern financial mechanisms, enhancing the financial leverage possibilities. The reduction in the issuance of government bonds has also opened space for the expansion of stocks issues. All this, slowly led to an increase in speculation and inflation in general, embracing all economic sectors, from the currencies to real estate, combining minor bubbles into a big one.

In this environment, the Viscount of Ouro Preto decided to create an institution to act as a regulatory agency for the financial market, a private central bank in the European manner, a reserve bank, a monetary authority of liquidity. The fact that Ruy Barbosa had been a great opponent of such system, accredited him to be appointed by the military as finance secretary, when they imposed the republic. When he took office, soon after the proclamation of the Republic, he put into practice all what he had criticized before. In January 1890 he enacted a new banking law inspired by the ideas of counselor Mayrinck, his banker and personal friend, who he without consulting the president appointed as head of the new Central Bank, signing the bill late at night in a scandal that would be the first of a series until his departure from the secretary.

This however didn't stop the enacting of the new law, despite protests and opposition from secretaries like Demetrio Ribeiro and Campos Sales, who predicting the consequences of measures, got a central bank to São Paulo.