Saturday, February 9, 2013

Venezuela Currency Devalued by 32 Percent Against US Dollar

Venezuela has decided to devalue their currency (Bolivar) against US Dollar with effect on Wed. The bolivar will go from 4.3 to 6.3 to the dollar. This is the country's 5th currency devaluation in a decade! Why are they doing that?

'The goal is to "minimize expenditure and maximize results." One effect of a devaluation is to make a country's exports cheaper and thus more enticing to buyers. But another effect is to cut the deficit, which in Venezuela last year was estimated to be nearly 10 per cent of GDP.'

So can you imagine in just overnight, the value of your currency just disappeared by 32%?

Guess what was their inflation rate last year ? A whooping 20%!

'The move should ease the fiscal gap by giving the government more in local currency terms for every dollar it earns in oil exports through state oil giant Petroleos de Venezuela, one of the world's biggest oil companies. The fiscal gap will close to 5.3% of gross domestic product compared with 8.5% last year, said Francisco Rodriguez, an economist at Bank of America Merrill Lynch.

"It's still a high deficit, the government hasn't completely solved the problem and they will most likely have to devalue again at the end of this year or the beginning of next year," he said

Isn't this what the biggest economies like US and Japan are now doing? Venezuela is the 8th country in the world that has dived into the global currency war.  Which other country would be next in line? And what is going to happen to the price of gold and silver?

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