1
$\begingroup$

According to recent news, Venezuela is lopping 5 zeros out of its regular Bolívar, and devaluing it, and pegging it to a cryptocurrence issued by Venezuela, to fight the economic situation (hyperinflation, low GDP, etc.)

However, if I remember well, won't the devaluation of a currency increase inflation by increasing prices of imports, and in some cases also increasing prices from domestic products by increasing exports?

What's the rationale here for this measure?

$\endgroup$
1
$\begingroup$

lopping 5 zeros out of its regular Bolívar

This will make the numbers used in daily shopping more manageable.

However, if I remember well, won't the devaluation of a currency increase inflation by increasing prices of imports, and in some cases also increasing prices from domestic products by increasing exports?

Devaluing the currency might help make imports possible again. The exchange rate vs the USD is held superficially high by the government. However, it is not possible to exchange Bolivars for USD because of the shortage of foreign currency caused by a drop in oil income. Getting paid in overvalued Bolivars is not very appealing, so imports have essentially ground to a halt causing massive shortages in products that aren't produced locally.

What's the rationale here for this measure?

The government hopes that this will stabilize the currency and reduce inflation to manageable levels. The market usually requires real change for that to happen, so in my opinion not much will change. There will still be hyperinflation and shortages.

References: https://en.wikipedia.org/wiki/Shortages_in_Venezuela

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.