New Currency Denominations For Venezuelan Bolivar

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How Does The New Currency Denominations For Venezuelan Bolivar Help Curb Run Away Inflation?

Venezuela not only has the biggest rate of inflation in the world currently but the country also has some of the poorest fiscal policies to tame it. Since the onset of the economic problems in the summer of 2012, very few and insignificant attempts have been made to put it in check. Nonetheless, the Venezuelan government recently issued a statement stating its intent to roll out six new Bolivar denominations within the range of 500 to 20,000 Bolivar.

Prior to this announcement, the highest currency denomination in the country stood at 100 Bolivar. But the 50 percent inflation rate has so far rendered it worthless as it only converts to a few cents when exchanged with the dollar. The shoot from a 100 bill to a 20,000 Bolivar bill is a clear indication of heightened economic turmoil the country currently faces.

Effect of the denomination print on the economy

While analysts view the move to print more and bigger bills as unwise and financially uninformed, they still believe it will come as a relief to the Venezuelan citizens. In the recent past, Venezuelan traders have been reported to be weighing the 50 and 100 Bolivar notes during transactions to avoid counting them. Bigger bills will also help alleviate the problems of having to carry huge sums of money around.

But is this the best solution to the current financial problem plaguing Venezuela? Analysts warn that while the move might make life in Venezuela relatively easy, it doesn’t help caution the hyperinflation the country is currently facing. With the inflation levels in the country estimated to hit 200 percent by the end of 2017, the country’s top leadership has to think of appropriate and fast turnaround solutions to wade off such a financial disaster.

Loss of foreign investments

The Venezuelan government’s actions in handling the crisis have to a large extent played a significant role in fueling the inflation further and scaring away potential foreign investors. For instance, in 2016, the Venezuelan president threatened to abolish the use of the country’s highest denomination, 100 Bolivar, on speculation that it was being hoarded by alleged mafias’ seeking control of Venezuela’s economy. Just recently, the president declared the country’s border with neighboring Columbia, where his citizenry turned to exchange currency and buy supplies closed; a move that has sparked a looting frenzy in the already basic-need-starved economy.

The Venezuelan economy is largely dependent on international trade both in the form of imports and exports. The inflation and the consequently controversial reforms by the Government have, therefore, not only stalled any meaningful cross-border trading relations in existence as well as ruined any possible foreign investments interests in eth country.

Bottom line

Instead of introducing larger denominations, Venezuela’s government should put more focus on deflationary tactics to help alleviate looming economic meltdown. Moreover, the Venezuelan president should be welcoming on ideas from both local and international foreigners on how to suppress the already terrible financial pressures facing the country. Printing of currencies isn’t a solution and foreign traders that the country relies on to bootstrap its economy understand this. Thus the reason they are continuously severing their relations with the country.

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New Currency Denominations For Venezuelan Bolivar

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