Yeah, That's Going to Work

Taking a page out of Robert Mugabe's playbook, Lippy McLipster has decided to issue a new currency in an effort to prop up the notion that's there's no inflation in Venezuela.

In an effort to stem record-high inflation, Venezuela launches a new currency on Wednesday – the “strong bolivar” – by slicing three zeroes off the bolivar.

While President Hugo Chávez’s government is hailing the measure as an anti-inflationary measure that will help stabilise the economy, non-government economists fear the strong bolivar will be anything but strong.

“We’re ending a historical cycle of . . . instability in prices,” Rodrigo Cabezas, finance minister, said on Monday, adding that the change aimed to “recover a bolivar that has significant buying capacity”.

“It was necessary to leave behind the consequences of a history of high inflation,” Gaston Parra, central bank president, said in a televised year-end speech. He added that officials aimed “to reinforce confidence in the monetary symbol”.

However, in view of racing inflation, an increasingly unsustainable exchange rate and shortages of basic goods, José Guerra, a former chief economist at Venezuela’s central bank, said: “The monetary ‘reconversion’ is not going to stabilise prices. It’s not going to help reduce inflation, or anything of the kind,” arguing that the new currency could even trigger higher inflation. “It’s a dangerous move,” he said.

{...}José Manuel Puente, an economist at the IESA business school in Caracas, says the exchange rate is at least 20-30 per cent overvalued. But the key problem, he argues, is the gap between the official and the “parallel” exchange rate for the dollar, which recently exceeded triple the official rate of 2,150 bolivars.

You know, just because people can set their farts on fire doesn't necessarily mean that they should. I believe the same principle applies here.