Filed under: central bank, Hugo Chavez, Inflation, Oil, OPEC, petrodollar, petroeuro, Petrol, Simon Bolivar, single currency
Venezuela Introduces New Currency
AP
January 1, 2008
Venezuela launched a new currency with the new year, lopping off three zeros from denominations in a bid to simplify finances and boost confidence in a money that has been losing value due to high inflation.
President Hugo Chavez’s government says the new currency — dubbed the “strong bolivar” — will make daily transactions easier and cure some accounting headaches. Officials also say it is part of a broader effort to contain rising prices and strengthen the economy.
“We’re ending a historical cycle of … instability in prices,” Finance Minister Rodrigo Cabezas said Monday, adding that the change aims to “recover a bolivar that has significant buying capacity.”
Prices have risen as Chavez has pumped increased amounts of the country’s oil income into social programs, reinforcing his support among the poor and helping to drive 8.4 percent economic growth in 2007.
The Central Bank is promoting the new monetary unit with an ad campaign and the slogan: “A strong economy, a strong bolivar, a strong country.” Officials, however, have yet to clearly spell out their anti-inflationary measures.
Some Venezuelan critics, meanwhile, have dubbed the new currency the “weak bolivar,” noting its predecessor, the bolivar, has seen its purchasing power suffer in an economy where inflation ran roughly 20 percent in 2007 — the highest in Latin America.
Venezuelan economist and pollster Luis Vicente Leon said that while the new currency may provide “the perception of stability” for some, it is largely a “cosmetic change.”
Government officials say the change is overdue to bring Venezuelan denominations into line with those of other countries in the region. Instead of denominations in the thousands, the largest new Venezuelan note will be 100 strong bolivars.
“It was necessary to leave behind the consequences of a history of high inflation,” Central Bank president Gaston Parra said in a televised year-end speech. He said officials aim “to reinforce confidence in the monetary symbol.”
The new money was distributed to banks and automated teller machines nationwide ahead of Tuesday’s launch and will be phased in during the next six months. Venezuelans will be able to use both old and new bolivars during the transition.
Venezuela has had a fixed exchange rate since February 2003, when Chavez imposed currency and price controls. The government has said it is not considering a devaluation any time soon.
But while the strong bolivar’s official exchange rate will be fixed as 2.15 to $1, the black market rate has hovered around the equivalent of 5.60 to $1 recently.
Venezuela’s currency has long been named after independence hero Simon Bolivar, who is pictured on the new 100 strong bolivar bill.
The new money is the latest in a series of changes to national symbols during Chavez’s presidency. He also redesigned the national seal and flag, and renamed the country the Bolivarian Republic of Venezuela.
With the new currency, the government is also resurrecting a 12.5-cent coin, called the “locha,” which existed during Chavez’s childhood but has not been used since the 1970s.
Filed under: CFR, Economic Collapse, economic depression, Economy, Euro, gas prices, Great Depression, gulf, Iran, monetary union, Oil, OPEC, petrodollar, petroeuro, qatar, Saudi Arabia, single currency, UAE, US Economy, Venezuela
CFR: Considering the PetroEuro
CFR
December 6, 2007
Easily missed amid the rising outcry over oil prices is the fact that they have only been skyrocketing in dollar terms. Priced in euros—or yen, or pounds sterling—the cost of a barrel of oil has risen much less over the past decade. At recent meetings of OPEC, the Organization of the Petroleum Exporting Countries, ministers disputed whether oil should be sold in euros instead of dollars (WashPost), in light of the dollar’s recent decline. Officials from Venezuela, Iran, and Algeria called for a switch. But Saudi Arabia and Kuwait, both of which hold huge dollar reserves, urged caution, and the bloc concluded the meetings saying it would further study (FT) the impact of the falling dollar on its member states.
If oil were priced in euros, what would the effect be? On the surface, possibly not much, experts say. “Whether they’re selling in dollars or euros, they can make their currency conversions,” says Peter J. Robertson, vice chairman of Chevron Corporation, in an interview with CFR.org. The fact that major currencies are easily exchanged means that oil producers don’t sustain any immediate monetary loss by accepting payment in one currency or another. Yet a currency switch could bring a slew of more subtle changes. First, there is the psychological impact. Robertson says a shift would send a clear signal that oil producers “didn’t have as much confidence in the future of the United States”—a sentiment that could deeply undermine investor confidence.
This, in turn, could further hamper the strength of the dollar. As Saudi Arabia’s foreign minister says “the mere mention that the OPEC countries are studying the issue of the dollar is itself going to have an impact,” adding that a dollar collapse could take a severe toll on OPEC (UK Telegraph) economies. Indeed, several of the main oil-exporting nations would be among the most vulnerable parties, globally, should the dollar’s value decline. Having accepted dollars in payment for years, countries like Saudi Arabia, Kuwait, and the United Arab Emirates have compiled massive dollar reserves (Economist), rivaling those held by China. They have a compelling interest in keeping those dollar piles as valuable as possible. Other countries, including Iran, have already diversified away (Gulf News) from the dollar, which explains the sharp differences of opinion within OPEC.
Beyond its effect on the dollar, OPEC shifting to the euro could also bring substantial benefits to European countries and companies by reducing currency risk (Guardian) currently built into their trade with oil states. More broadly, an OPEC shift to the euro could bring an overall reduction in global demand for the dollar, taking away one of the main ways in which the United States has financed large budget and trade deficits, as CFR’s Brad W. Setser notes in a recent interview.
The pressing question, then, is whether OPEC will switch. Here, expert opinion is mixed. Pressure from Saudi Arabia, OPEC’s heavyweight, seems likely to keep any immediate switch at bay. Two Lehman Brothers economists write on the website of the Financial Times that Riyadh’s stockpile of petrodollars binds its prospects to the health of the currency. Still, it seems all but certain that more oil states will follow Iran’s lead in diversifying their holdings away from the dollar. Riyadh has substantial support (Bloomberg) in defending the dollar, but Nigeria and Angola, two of Africa’s major oil exporters, are making new efforts to diversify their currency reserves.
Gulf States to Discuss Single Currency Plan by 2010
http://in.reuters.com/article/businessNews/idINIndia-30787820071202
Filed under: Euro, Greenback, gulf, Iran, monetary union, Oil, petrodollar, petroeuro, qatar, Saudi Arabia, single currency, UAE, Venezuela
6 Oil-Exporting Gulf States planning to develop a monetary union with a Euro-like single currency by 2010
Reuters
December 2, 2007
DOHA (Reuters) – Gulf Arab finance ministers will discuss a plan to speed up a delayed monetary union project before their rulers meet on Monday, the secretary general of Gulf Cooperation Council economic bloc said on Sunday.
The finance ministers will prepare the agenda for the summit, which is under intense market scrutiny after the United Arab Emirates, the bloc’s second largest economy, called for an end to region’s currency pegs to the tumbling dollar.
“The ministers will discuss the GCC single currency,” Abdul-Rahman al-Attiyah told Reuters on the sidelines of the meeting in Qatar’s capital Doha.
Asked whether there was any plan to speed up the project, he said: “Yes.” The plan would be designed to meet the 2010 deadline for monetary union, he said.
The minister would also discuss a customs union, monetary union and creating a common market in the world’s biggest oil exporting region, Attiyah said.
He declined to comment on whether dollar weakness and market speculation about the demise of the region’s dollar pegs were on the agenda.
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