![]() ![]() “The cost for economic actors of going back to thinking in bolivars is higher than the benefits. “Dollarization is not going to be reversed,” he said. Policy makers tend to wrongly assume that it is possible to revert dollarization once inflation is under control, said Daniel Cadenas, economist and professor at the Venezuela’s Central University, pointing to cases such as Peru, where the use of the dollar is still common despite decades to combat it. The government has a long way to go before people trust enough in the currency to switch from dollars, especially with inflation still running at an annual clip of around 99%, according to the Bloomberg Cafe con Leche Index. Over the past six months, the bolivar has fallen 7% against the dollar, unfamiliar territory considering it used to lose nearly all its value every year, leading the central bank to slash 14 zeros from it since 2008. “It could hinder the incipient recovery that continues to be very fragile.” ![]() “If that pressure is more than the central bank can handle, we would see an increase in the exchange rate,” Cunto said. Firms and individuals will demand more bolivars to make payments, which may create additional pressure in the exchange market. The tax threatens to push businesses further into informality and undermine the government’s inflation-fighting strategy, said Giorgio Cunto, senior economist at Ecoanalitica, the Caracas-based consultancy that carried out the study on dollar transactions. But it’s a high-risk strategy that could backfire given the length and depth of the economic collapse - the worst in the Western Hemisphere in decades - and the tepidity of consumer and investor confidence. #Currency converter bloomberg seriesThe move is a sign that President Nicolas Maduro is increasingly confident the economy is on solid footing after a series of free-market reforms and that Venezuelans believe his government will manage to prevent a return of the kind of hyperinflation that ravaged the country for years. #Currency converter bloomberg fullA separate report released Tuesday found the use of bolivars in Caracas rose sharply in April, the first full month after its introduction. One study done by a private firm indicates there was a slight shift away from the dollar in the days after the tax took effect. Emboldened by surging oil exports that are fueling economic growth and helping keep the foreign-exchange rate steady, the government is pushing Venezuelans to use the bolivar more by slapping a 3% tax on purchases made with dollars in shops, restaurants and grocery stores. dollar.īut the Socialist regime, always reluctant to fully turn its economy over to the dollar, is now making a surprise bid to revive the local currency. For years, the bolivar drifted toward irrelevancy as Venezuelans embraced the economic stability brought on by the widespread use of the U.S. ![]()
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