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Venezuela’s Chavez orders currency reform in Venezuela

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by Elaine Frei

The president of Venezuela has ordered that nation’s legislature and central bank to introduce new currency, to be named the “nuevo bolivar”, which would take three zeroes off the exchange value. Legislators say that this “monetary reform” is aimed at reducing inflation and making accounting easier. The bolivar currently trades at a fixed rate of 2,150 to the US dollar. The new currency is expected to be introduced on January 1, 2008.

This sort of move has in the past been used by nations trying to rein in hyperinflation, but Venezuela’s current inflation rate of 14.4 percent is well below anything that could be included in that term. When nations such as Brazil, Bolivia, and Argentina used this tactic in the 1980s and 1990s, their inflation rates were in some cases measured in thousands of percentage points.

Some analysts believe that the real motive for the proposal by President Hugo Chavez is more in line with his penchant for patriotic symbolism, which has included the alteration of a number of national symbols, including the national flag. One analyst even went so far as to charge that Chavez’s real objective is to put the portraits of his own historical heroes on the new currency. It has also been pointed out that an introduction of new currency will have no effect on inflation unless fiscal policy is reformed at the same time.

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News posted: June 21, 2006

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