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Oddly Enough

Venezuela to chop 3 zeros off currency bills

CARACAS (Reuters) - President Hugo Chavez said he will chop three zeros off new bolivar currency bills to bolster Venezuelans’ perception of a strong currency in a bid to curb inflation, which is now highest in Latin America.

Venezuelans wait in line to buy dollars at an Italcambio money exchange house in Caracas February 13, 2002. President Hugo Chavez said he will chop three zeros off new bolivar currency bills. REUTERS/Kimberly White

But an ex-central bank director said the measure may have the opposite effect because it could give people the idea they have more buying power and businesses may round up their calculations so that consumers will pay a little extra.

The bolivar, named after Chavez’s 19th century hero Simon Bolivar, trades above 4,000 bolivars to the dollar on the parallel market, around double the official fixed exchange rate is 2,150 bolivars.

Chavez said he wants to alter the bills so that for example, a 1,000 bolivar note would be a one bolivar coin.

‘PSYCHOLOGICAL EFFECTS’

“This will give us higher efficiency in payment systems, consolidate confidence in the currency and produce positive psychological effects in people,” Chavez said in his late-night television program “Hello President.”

Last year, Venezuela started to take out of circulation the 500 bolivar note.

Chavez, who announced the move as part of an anti-inflationary package that included reducing VAT, emphasised his point by throwing an old silver 5 bolivar coin, nicknamed the “muscle,” onto his desk with a clang.

He said he hoped to launch the new currency next year on February 4, the anniversary of his failed 1992 coup that made him famous.

But Domingo Maza Zavala, who this year left his post on the board of the central bank, disagreed, saying it would prompt people to spend more and allow stores and suppliers to edge their prices up.

“With rounding it’s always the same problem, there’s never any rounding down,” he told local station Union Radio on Friday morning.

Chavez has faced opposition and media criticism for last year’s inflation of 17 percent and has struggled to keep food costs down despite controls that have caused distortions in supply chains and occasionally left store shelves empty.

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