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Cargo Cult Economics

January 18, 2008, 8:27 am

From Venezuela:  (via Mises)

Venezuela launched a new currency with the new year, lopping off three
zeros from denominations in a bid to simplify finances and boost
confidence in a money that has been losing value due to high inflation....

"We're ending a historical cycle of ... instability in prices,"
Finance Minister Rodrigo Cabezas said Monday, adding that the change
aims to "recover a bolivar that has significant buying capacity."

Prices have risen as Chavez has pumped increased amounts of the
country's oil income into social programs, reinforcing his support
among the poor and helping to drive 8.4 percent economic growth in 2007.

The Central Bank is promoting the new monetary unit with an ad
campaign and the slogan: "A strong economy, a strong bolivar, a strong
country." Officials, however, have yet to clearly spell out their
anti-inflationary measures.

Good to see the government taking meaningful steps.  Next up will be "Whip Inflation Now" buttons. 

The 8.4 percent growth cited above may be illusory, given this:

Venezuela has had a fixed exchange rate since February 2003, when
Chavez imposed currency and price controls. The government has said it
is not considering a devaluation any time soon.

But while the strong bolivar's official exchange rate will be fixed
as 2.15 to $1, the black market rate has hovered around the equivalent
of 5.60 to $1 recently.

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Category: Economics

3 Comments

  1. Kyle Bennett:

    "Officials, however, have yet to clearly spell out their anti-inflationary measures."

    They've just cut all prices by 1000. Duh. That's like, cutting inflation, in that instant, to -100,000%. I can't even calculate what that is annualized. Even Jerry Ford couldn't match that.

    'Cause, you know, money is little slips of paper with numbers on it. And their new airstrip is ready for all those planes to start landing.

    January 18, 2008, 5:26 pm

  2. Al Fin:

    Something like this happened with Mexico a while back. Clinton felt forced to bail out the US southern neighbor to a large green tune. Do you think either of the leading Democratic Party candidates would bail out Venezuela? (of course John Edwards would)

    January 19, 2008, 6:20 am

  3. Mesa Econoguy:

    This is the same net effect of undergoing a 1-for-1000 reverse split.

    The net value of your investment is still the same.

    I would recommend a slightly different slogan:

    “A strong economy, a strong bolivar, a strong country, a strong-armed dictator.”

    January 19, 2008, 1:02 pm