Venezuela’s president Huga Chavez called for a currency devaluation of 50% in an effort to increase exports and aid the ailing economy.
Venezuelans rushed to the shops on Saturday, fearful of price rises after a currency devaluation that will let President Hugo Chavez boost government spending ahead of an election but feeds opposition charges of economic mismanagement.
In a bid to jump-start the recession-hit economy of South America’s top oil exporter, Chavez on Friday announced a dual system for the fixed rate bolivar.
Those sitting in cash when the devaluation hit had 50% of their net worth completely wiped out, as the cost of goods essentially doubled overnight.
Essential goods like food did not suffer the same fate as non-essential goods, which were hit hardest in the dual-rate devaluation, as reported by Bloomberg News:
Chavez said the bolivar will be devalued to 4.3 per dollar from 2.15 per dollar for most imports. A second, subsidized peg of 2.60 bolivars per dollar will be used for importing food, medicine and machinery intended to boost the economyâ€™s competitiveness.
â€œThis is to boost the productive economy, to reduce imports that arenâ€™t strictly necessary and to stimulate exports,â€ Chavez, 55, said in comments on state television. â€œWe need to stop being a country that only exports oil.â€
An increase in imports at the 4.3 rate may add between 3 percent and 5 percent to the annual inflation rate in 2010, Rodriguez said on state television.
The government said before the announcement inflation will likely be between 20 percent and 22 percent this year. Inflation ended 2009 at almost 27 percent.
Could the same thing happen to the US Dollar in the not so distant future?