Bogus Bolivar

Over two years ago, the fools responsible for the economic policies of President Hugo Chavez came up with a great idea. They decided to create a new currency called the Bolivar Fuerte (BsF or Strong Bolivar), take three zeros off the old Bolivar, keep the official exchange rate at BsF 2.15 per dollar (instead of Bs.2,150/$) and – presto – Venezuela’s economy would be strengthened and inflation controlled. President Chavez embraced the idea enthusiastically (in fact, some wags say he was the original intellectual author), since it created the opportunity to put the faces of approved Bolivarian heroes on the new currency.
Guess what? It didn’t work. The Central Bank reports that the new BsF lost 27.6% of its value from January-November 2008. Former Central Bank Director Domingo Maza Zavala, an economist and socialist, warned in 2006 that inventing a new currency would have no impact whatsoever on inflation if the government failed to cut public spending. Of course, Chavez would not countenance any cuts in public spending since big spending is the only thing keeping his Bolivarian revolution afloat.
The Central Bank also notes that Venezuelan consumers still have not made the transition from the old Bs to the new BsF. The old Bs is still used widely in the economy, even by government entities like the Caracas Metro, and both currencies (at last in coins) are still used in all businesses and accepted by all banks in Venezuela. Could it be that Venezuelan consumers wisely perceive they were given a pig in a poke? The old Bs will certainly be eliminated sometime in 2009, but inflationary pressures will continue to accelerate. Three zeros more or three zeros less makes no difference. Inflation bites just as hard – in fact, inflation has picked up under the new BsF.

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About Caracas Gringo

Representing less than 0.00000000001515152% of the world population as of 31 December 2011.
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