Posted on 02/18/2007 7:25:46 AM PST by staytrue
CARACAS, Venezuela - President Hugo Chavez announced Thursday that a new currency will be introduced into Venezuela next year in order to combat inflation.
Chavez said three zeros will be stripped from the bolivar, and banknotes and coins for the "new bolivar" would enter into circulation in early 2008.
Chavez said the measure would help fight inflation and boost the strength of the local currency.
"A strong bolivar, a strong currency," Chavez said on his newly revamped TV show, "Hello, President."
Inflation ended at 17 percent last year — the highest rate in Latin America. While the exchange rate of the bolivar has been fixed by the government since 2003 at 2,150 bolivars to $1, its black-market value has tumbled, trading recently at about 4,000 bolivars to the dollar.
Justifying the measure, Chavez argued that the country's strong economic growth of recent years, which has been fueled by high oil prices, has made Venezuela "a world economic power," and that it was psychologically damaging for $1 to be worth so many bolivars.
The new currency would simplify transactions, improve efficiency, generate confidence and rein in inflation, he said.
The Venezuelan leader also announced a gradual 5 percentage point reduction in the value-added tax, currently 14 percent, by July 1 to help combat inflation.
Other countries like Brazil and Argentina have redenominated their currencies in the past to try and rein in hyperinflation, but some economists say such measures have little effect unless it is accompanied by fiscal reforms.
Public opinion can be a deterent and higher interest rates can also deter govt. created inflation.
[...to day there is no legal definition of the value of the dollar. Its value fluctuates according to supply and demand.]
That's how it's supposed to be. Assuming the economy is sound (people are continuing to freely produce goods and provide services in exchange for money) and the government isn't screwing with the supply of currency, then a dollar accurately reflects the real value of work.
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