Cubezuelan Economics Explained!
(T)Hugo Chavez has an absolutely brilliant new plan to beat Venezuela's region-leading inflation rate. This is so simple that it appears to have been reasoned out by a three year old! (Apologies to three year olds everywhere for likening them to (T)Hugo). You see, all you have to do, in the new Cubezuelan economic model is chop three zeros off the paper money! 1,000 Bolivar notes will now be 1 Bolivar notes!
CARACAS (Reuters) - President Hugo Chavez said he will chop three zeros off new bolivar currency bills to bolster Venezuelans' perception of a strong currency in a bid to curb inflation, which is now highest in Latin America.
But an ex-central bank director said the measure may have the opposite effect because it could give people the idea they have more buying power and businesses may round up their calculations so that consumers will pay a little extra.
The bolivar, named after Chavez's 19th century hero Simon Bolivar, trades above 4,000 bolivars to the dollar on the parallel market, around double the official fixed exchange rate is 2,150 bolivars.
Chavez said he wants to alter the bills so that for example, a 1,000 bolivar note would be a one bolivar coin.
'PSYCHOLOGICAL EFFECTS'
"This will give us higher efficiency in payment systems, consolidate confidence in the currency and produce positive psychological effects in people," Chavez said in his late-night television program "Hello President."
I can think of a much better title for his program, like, "Ask the Economic Idiot", but in (T)Hugo's case that's redundant. On the bright side, as soon as the new currency kicks in, the demand for wheelbarrows will skyrocket. Because people will need one to carry enough of the new money to buy a loaf of bread.
World news | Gaius Friday, 16 February , 2007
By Jose, Friday, 16 February , 2007 @ 9:52 pm
No. Chavez is not fighting inflaion. Rather he is making yet another right out of the classic revolutionary playbook. It goes like this:
First you change the currency and you replace it with a new one with an obviously different look.
Second, you then require that all the “old” currency circulating be replaced by the new one by a certain date after which the old currency will be void and of no value.
Third, you use this conversion process to further squeeze the opposition by requiring that all those presenting large sums provide evidence that they have paid past taxes commesurate with these sums.
In these fashion the government forces everyone to retrieve and reveal their liquid cash assets which may have been hidden from the government.
It is an old maneuver of revolutionary regimes to put the opposition in a lose/lose situation. Turn in the liquid assets and reveal what you have or not turn them in and lose them completely.
What is likely to follow is a surge in the demand for the US dollar further weakening the Bolivar in market for US dollars.