Forex Blog: Currency Trading News & Analysis.

January 8th 2008

Venezuela’s Currency Loses a Few Zeros

In Venezuela, the inflation rate for 2007 is estimated at 20%, a slight increase over the 17% growth in prices that was observed in 2006.  The nation, led by Hugo Chavez, plans to deal with inflation by dropping a few zeros from the currency’s exchange rate.  Currently, the official exchange rate is 2,150 Venezuelan Bolivars for every US Dollar.  Under the revaluation, the new official exchange rate will become 2.15 Bolivars/USD.  Critics charge that the change will not have any impact on inflation, especially since the market exchange rate implies a Bolivar that is three times less valuable than government rates.  Chavez retorts that the revaluation is only one part of a broader, more sophisticated strategy.  Down Jones reports:

The Central bank president had earlier in the year said the effect on inflation would be neutral, and most economists agree, but [Finance Minister] Mr Cabezas said "it’s definitely going to have a positive effect" on the government’s fight against price increases.

Read More: Chavez drops zeros to fight inflation

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