How strong is the Bolivar Fuerte?

As was announced months ago, the "Restructuring? sign of our national currency, the Bolivar, is underway. The Central Bank of Venezuela (BCV) has already begun campaign necessary to explain that it is, what will its scope and what your goals ...

The measure itself presents quite wicked, as we explained in the BCV, it is simply to make our currency more manageable in terms of accounting and management to lower production costs and replacement of paper money, to balance the amount of change Bs / US $ to levels similar to those of other countries in the area (hey, this equilibrium or similarity is only formal, in terms of "numbers? with that rate of change is expressed, not the value of the currency), and making the Venezuelan economy to international standards in terms of cash held by citizens in a given time and all this is accomplished by removing three zeros from our currency.

At this early stage, as I say, has begun the process of information, the second step, from October this year, requires that all prices of goods and services must be expressed in both notation systems for people becomes accustomed to the new sign, from 1st. January 2008 into circulation new banknotes and coins but for no longer than six months old will continue to circulate and will be used as payment of legal movement although by law and all the prices, tariffs, accounting systems and so on. will already be expressed and taken into Bolívares "Strong?, after this period, which may extend as much as the Central Bank deems it necessary, shall be progressively withdrawn from circulation and the Bolivars Old and be fully implemented so far ...

It is assumed that the process is simple and, in the words of BCV directory is "a neutral process?, Ie the taking of three zeros from the bolivar is not going to affect anything the value of the currency and Bs 1000 "Old? correspond to 1 Bolívar "Strong?, whether it is the price of a good, service, a financial instrument, debt or wages of a person, the real value of any of them will not be changed, modified only how to express it if they want to delve into the official explanation of this whole issue can explore the content of this page BCV.

To successfully carry out this project is necessary to give the very proper and careful attention to a few aspects that seems to me that even he has not been given and I want to comment below.

First than anything else: the "value? the Bolivar. In terms of our economic theory is overvalued Bolivar, few people realize that the computation of the time it takes anchored to a fixed exchange rate of 2,150 Bs / US $ and restricted free trade through the filter of CADIVI, and there is no for days or months but for years, and during these years that have elapsed since I took this as the nation's GDP has not stopped down, (the increase of imports by lowering the production of goods and services because the closure of businesses support this assertion), and inflation has not stopped growing.

I have heard and read with amazement that some people insist on "demand? the government to take the measure of the conversion to "revalue? (Even more?) Our currency and set your price (exchange rate) to a value that reflects "the reality?, (At least they perceive reality), citing as justification for this loss of relative value has suffered the U.S. dollar against the Euro.

Not so the issue is not blowing and making bottles as these people seem to think a government can arbitrarily fix the exchange rate of the currency of the nation (they represent and whose assets under management) in a temporary, or even arbitrary supported by all kinds of nonsense and maintain that rate of return for periods as long as the economy hold (always assuming that the government really interested in economic realities), but in no way it means that the price or fixed rate is applicable, even minimally, with the actual value of the coin, if not Look at the arbitrary fixing of the exchange rate in Argentina before the recent crisis or in the enviable rate of change that has the luxury of maintaining Cuban economy collapsed.

This value is determined by a multitude of factors whose balance is very fragile and delicate, and only governments / administrators, highly effective and skilled manage to keep these balances thus giving strength to their currencies and this, everybody knows, has not been the case of Venezuela for many years. From the "black Friday? to today our currency has devalued by more than (I put in so many words) FIFTY THOUSAND PERCENT.

I will not take the account, but no one should escape him that in addition to structural economic variables "natural? to calculate the value of the currency, a large measure of this is given by the action of the laws governing the foreign exchange market and if we assume the price of the dollar in the parallel market (I can not publish because it is illegal to even mention it) as maximum price, the product of the very limited offer and the official value, the minimum price the monopoly product almost perfect CADIVI were mounted, one can assume that somewhere in between lies the real value, in fact if you take the average between the two figures can be confident that the actual value is quite close to the result, more Old Bolivar, Bolivar Old least ...

And here the obvious: if the real exchange value of the dollar as reference currency, ie, its real price in bolivars, is above the official rate means that our Bolivar actually worth less than what it says fixed exchange ratio by the government for years.

What does this mean? Well, simply that the Bolívar Fuerte, but has less zeros, but you add as many positive adjectives and self-generating as we want, will be as weak as it is now our Bolivar "simple?, The life-and from Next year will be "Old?.

How important is this?. Many, on the one hand, once the conversion, the exchange ratio Bs / US $ is also removed three zeros, ie what is now expressed as follows: 2150.00 Bs / US $ will henceforth expressed as follows: 2.15 Bs / US $ and expressed in this way, any small variation, seemingly insignificant as it may be expressed in terms of "cents? could actually make a big devaluation if we express it in Bolivar Old and as experience demonstrates the validity of the "Think wrong and be right? we must be very aware if anyone in the government comes up with "let slide? slowly and gently the exchange rate, a few "cents stronger? at a time.

The suspicion that this happens is not as groundless or as alarmist as some may say, then on the other hand, the rate of inflation in Venezuela is growing at a galloping pace, according to BCV figures, accumulated inflation in a year (May 2006 to May 2007) is 19.5% and this figure must be taken with tongs mainly for two reasons: first because it is an official figure for its origin and becomes suspicious, especially in a government that has been characterized by low stringency the accounts and secondly because the calculation of this figure have used data from a large number of items whose price is regulated (also for years) but we all know that in "real life? are sold at prices far higher than those fixed ... (Assuming that these items actually get into the market) ... so it is logical to conclude that actual inflation is higher than advertised, and certainly, if not agree, the wage increase last May was 20%, ie the same month it was announced and had already been set "eaten? by inflation.

The main reason for the structural weakness of our economy, which is obvious symptom of inflation, the gross expansion of government spending we've seen over the years and on which there is no evidence, by the government, of having intentions to reduce or even regulate.

The indiscriminate use of resources to channel them into all kinds of programs, commitments and projects, both nationally and internationally, including purchases, payments, scholarships, grants, donations, gifts and so on. and also indiscriminate use of the "machine of printing money? have resulted in an excessive public spending that keeps the national accounts in constant deficit and a huge excess monetary liquidity has dramatically lopsided our economy and that if not corrected, or rather, the correction could mean another dreadful devaluation the kind we have experienced before by exactly the same reasons and in these circumstances there is Bolivar Fuerte endurance, and risk repeating the tragic experience of Brazil with their conversion to the Cross or Southern Argentina with the two cases very close to maxi-devaluation of hyperinflation and attempted a few months after the conversion ...

Furthermore, given the chronic shortage of evidence that we are living, another structural damage to our economy that is already being felt, but whose effect could be enhanced in the short and medium term, affecting the stability of the proposed Bolivar Fuerte: the disintegration of the productive the country, closing all kinds of industries and businesses, forced development of the port economy that puts Venezuela in a delicate situation, because in these conditions there is no way to react quickly enough to any crisis that affects our sign money and thus compromise relationships and commitments made and kept in foreign currencies, which would mean the disruption of the movement of goods and commodities that today we are in the obligation and need to import for our consumption would end up being reflected in increased prices widespread ... more inflation ...

Another point related to the Bolivar Fuerte do not want to mention is the theme of "Rounding?, Once carried out the conversion and deleted three zeros, some if not many, prices of goods and services will end up being expressed in a whole number with cents, hopefully, will be rounded "up? by which we are charging that price.

It is assumed that provision has already been done this and that is the reason for the appearance, for use of coins of 1, 5, 10, 12.5, 25 and 50 cents may be used by users and consumers to prices paid accurately, thus avoiding the possibility of rounding, also announced a series of formal conditions for performing this rounding in case it is inevitable ...

No one who lives in Venezuela is aware that since, a few years ago, returned to be legal tender coins that replaced low-denomination notes, the lack of them has been chronic, which has already made the agenda of the rounding practice at all levels, and in no way is possible or reasonable to think that this shortage of loose change will not just by the mere will of BCV directory and the minting of new coins, especially in For the lowest denomination of which are undoubtedly those that have greater mobility. Rounding, whose main beneficiaries are the banks (jot it down) and some sectors of commerce and service providers will result in price increases spontaneous, in the context of a "strong currency?, Will be felt more harshly in pockets of consumers.

Finally, in plan somewhat anecdotal, but no less disturbing: I'm sure I'm not the only one who has heard someone say how happy I will be when this conversion takes place because "imagine all you will be able to buy? or "Now if I will pay the salary? even, and this is strictly true: "The January 2nd I run to buy my apartment? ... most likely also not be the only one who innocently trying to bring these people out of their error that should also remove the three zeros of their salaries, received answers and bad jokes or gestures and intemperate words such as "Are crazy?, no commander can we take that shit !?... Eeeeh ... as if ...

The information campaign urgent need not be limited to the treaty bodies, much less exclusively to the official media, many people are thinking that this is a drastic price reduction, the product of a monumental revaluation of the currency, an idea reinforced by the tagline of the new sign: "Strong? ... I hope for the sake of all those who today are excited about these fantasies orgiastic consumption, the wide and continuous dissemination of this necessary clarifying information is highly effective as, if not, I can not even imagine what will happen on 15 January 2008 when the people get their first "pay envelope? with a handful of scrawny "Strong?, but few notes ...