News / Americas

Economists Divided Over Venezuela's New Forex System

Economists Divided Over Venezuela's New Forex Systemi
X
March 28, 2014 10:45 PM
In the midst of ongoing anti-government protests, the Venezuelan government has introduced a new currency exchange system to reduce the soaring black market for dollars, which has contributed to food shortages and high inflation in the country. VOA’s Brian Padden reports that both liberal and conservative economists support this move, but are divided over whether the measure is strong enough to stabilize the economy of this oil-rich but troubled country.
Brian Padden
In the midst of ongoing anti-government protests, the Venezuelan government has introduced a new currency exchange system to reduce the soaring black market for dollars, which has contributed to food shortages and high inflation in the country. 

Both liberal and conservative economists support this move, but are divided over whether the measure is strong enough to stabilize the economy of this oil-rich but troubled country.

Venezuela’s leaders have taken harsh measures against anti-government protests that began in February and have on occasion turned violent and deadly.  But the government has also taken a conciliatory step to address a key a demand of the protesters -  fix the ailing economy.
 
It has implemented a new market-based currency exchange system called “Sicad 2” to sell dollars for eight to 10 times the official government-controlled exchange rate of 6.3 bolivars per dollar.

While Venezuela is a rich country and claims to have the world's largest oil reserves, the economy has suffered from hyperinflation and shortages of basic goods, due in part to the restricted government exchange rate.  

Mark Weisbrot, with the Center for Economic and Policy Research, said in an interview from Peru that the new exchange system should help stabilize the economy by reducing the impact of  the illegal black market for dollars.   

“You had kind of a bubble in the black market for the dollar, people buying dollars because they thought it was a one-way bet and it was always going to, the dollar value would always go up, and now that is not going to be the case," he said.

Venezuelan opposition groups call this new system a currency devaluation, but the government says the new rate is only for nonessential goods.  

Owners of a gift shop in Caracas called Viqui, that imports products from China, told VOA they have submitted a Sicad 2 request to the Central Bank to purchase dollars.  But the bureacratic process could take weeks, and there is concern that the government will not provide enough dollars to make the new system work.  

Barbara Kotschwar, with the Peterson Institute for International Economics, says the lack of dollars does not address Venezuela’s main economic problem.  The country, including the oil industry, is producing less, and the government is printing more money to cover its growing debts.

 “The money supply has doubled since about December 2012. This is in an economy that has been growing at under two percent," said Kotschwar.

When Sicad 2 first debuted, the black market rate fell from about 90 to close to 50 bolivars to the dollar, but, since then, the rate has been rising - indicating to many that confidence in Venezuela’s economy remains low.

You May Like

N. Korea Sentences American to 6 Years Hard Labor

Matthew Miller's brief trial Sunday comes two weeks after 24-year old Miller and two other American detainees appealed to the US government to help free them More

Pakistan Rejects Afghan Criticism of 480-kilometer Border Trench

Military spokesman tells VOA the project is part of administrative and security measures taken to secure the mountainous border with Afghanistan More

Photogallery Typhoon Kalmaegi Makes Landfall in Philippines

Storm makes landfall late Sunday, cutting power and communications lines and forcing people to flee to higher ground More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Scotland Independence Bid Stokes Global Interesti
X
Henry Ridgwell
September 12, 2014 8:35 PM
The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.
Video

Video Scotland Independence Bid Stokes Global Interest

The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.
Video

Video Washington DC Mural Artists Help Beautify City

Like many cities, Washington has a graffiti problem. Buildings and homes, especially in low-income neighborhoods, are often targets of illegal artwork. But as we hear from VOA’s Julie Taboh, officials in the nation's capital have come up with an innovative program that uses the talents of local artists to beautify the city.
Video

Video Palestinians Turn to Rebuilding Gaza

After almost two months of conflict in Gaza, Palestinians are preparing to rebuild the isolated Mediterranean enclave with assistance from abroad. Meanwhile, an international human rights group has found that Israel likely violated international laws of war during some of its attacks on Gaza. Zlatica Hoke has more.
Video

Video US Muslim Leaders Condemn Islamic State

Leaders of America's Muslim community are condemning the violent extremism of the Islamic State group in Iraq and Syria. The U.S. Muslim leaders say militants are exploiting their faith in a failed effort to justify violent extremism. VOA correspondent Meredith Buel reports.
Video

Video Middle Eastern Church Leaders Highlight Christians’ Plight

Patriarchs of Eastern Rite churches came to Washington this week to draw attention to the attacks against Christians in Syria, Iraq and elsewhere in the Middle East. VOA’s religion correspondent Jerome Socolovsky has more.
Video

Video Americans' Reaction Mixed on Obama Strategy for Islamic State Militants

President Barack Obama’s televised speech on how the United States plans to “degrade and destroy” the group known as the Islamic State reached a prime-time audience of millions. And it came as Americans appear more willing to embrace a bolder, tougher approach to foreign policy. VOA producer Katherine Gypson and reporter Jeff Seldin have this report from Washington.
Video

Video Authorities Allege LA Fashion Industry-Cartel Ties

U.S. officials say they have broken up crime rings that funneled tens of millions of dollars from Mexican drug cartels through fashion businesses in Los Angeles. Mike O'Sullivan reports that authorities announced nine arrests, as 1,000 law enforcement agents fanned out through the city on Wednesday.
Video

Video Bedouin Woman Runs Successful Business in Palestinian City

A Bedouin woman is breaking social taboos by running a successful vacation resort in the Palestinian town of Jericho. Bedouins are a sub-group of Arabs known for their semi-nomadic lifestyle. Zlatica Hoke says the resort in the West Bank's Jordan Valley is a model of success for women in the region.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid

More Americas News

Powerful Hurricane Threatens Mexico's Baja California

US forecasters have downgraded Odile to strong Category 3 storm, with top sustained winds of 205 kilometers per hour
More

Hard-hitting Films Tackle Homelessness at Toronto Festival

'Time Out of Mind,' 'Shelter,' and 'Heaven Knows What' all focus on characters struggling with homelessness, addiction on the streets of New York
More

After Tax Reform Triumph, Chile's President Faces Rockier Road

'Honeymoon' may be over for Michelle Bachelet as protests rise and economy, security outlook worsen
More

Mexico: Texas Governor's Border Deployment Politically Motivated

Rick Perry says he is sending up to 1,000 troops to Mexican border to deter criminal activity caused by drug cartels
More

Video Authorities Allege Ties Between LA Fashion Industry, Cartels

Officials say the LA fashion industry has attracted drug money since the Mexican government tightened restrictions on cash transfers
More

Brazil Confirms Amazon Deforestation Sped Up in 2013

Destruction of world's largest rainforest accelerated last year with a 29 percent spike, figures confirm a reversal in gains seen since 2009
More