MercoPress. South Atlantic News Agency

New currency with three zeros less for Venezuela

Venezuela will introduce a new national currency that would knock three zeroes off the exchange value and could be renamed the “Nuevo Bolivar”.

Experts said the impact of such a measure would be more symbolic than economic. Government legislators say the "monetary reform", as it is being described, is intended primarily to help reduce inflation, as well as to make accounting easier for the government, businesses and consumers.

The aim, according to Central Bank officials and legislators, is to eliminate three zeros from the value of the Bolivar, which currently trades at a fixed official exchange rate of 2,150 to the US dollar.

Rodrigo Cabezas, president of the National Assembly's finance commission, said the government intended to introduce the new currency on January 1 2008.

"The central bank must prepare for this monetary reform, whose objective is to defeat inflation once and for all," Mr Cabezas said.

However, some experts suspect that the measure has more to do with the sort of patriotic symbolism favoured by President Hugo Chávez than with economics. In the last three years Mr. Chavez has revamped the Venezuelan flag and crest.

The removal of several zeros from the value of a currency has historically been a component of a wider policy aimed at stopping hyperinflation. In the 1980s and early 1990s, such measures were introduced in countries such as Argentina, Bolivia, Brazil and Uruguay, when inflation rates were often measured in thousands of percentage points.

Venezuela currently has the fastest rate of inflation in the region, but at 14.4% in 2005, the rate is way below what could be deemed "hyperinflation".

Economists say the introduction of a new currency will be pointless if it is not accompanied by an overhaul of fiscal policy.

With soaring oil prices the Chávez administration has dramatically increased expenditure in parallel to the official budget, one of the main causes of excess liquidity and persistent inflation.