labels: Trade
Venezuela cuts three zeros off its currency news
02 January 2008

Venezuela's president Hugo Chavez greeted the new year on Tuesday by revamping his country's currency, the bolivar, to tackle the highest rate of inflation in the western hemisphere.

The bolivar's official exchange rate is now 2.15 bolivars per dollar, compared with the previous official rate of 2,150 to the dollar, as 1,000 old bolivars will now constitute one new bolivar.

The move is aimed at making accounting easier and to tame a galloping inflation rate of 20.7 per cent in the 12 months till November 2007. But critics of the Chavez administration called it a mere cosmetic change, and said it does not address the underlying causes of the OPEC nation's price instability.

Economists say the monetary conversion may cause confusion, and even actually lead to more inflation initially, as a result of rounding off amounts with the change in currency values. They say the government has to reduce monetary liquidity and slow down spending of Venezuela's record oil revenues, to control consumer prices.

But government leaders are confident that the measure will have a positive psychological effect on consumers by demonstrating the strength of the bolivar. In 2006, Venezuela's inflation rate was 17 per cent. It reached 18.6 per cent between January and November 2007.

The finance ministry said the new currency notes would be available in some businesses and cash machines immediately. The government plans to slowly phase out the existing notes and coins over the coming months.


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Venezuela cuts three zeros off its currency