Do not get startled – It is absolutely true if you are a resident of Venezuela. Gold Prices jumped almost 50% in Venezuela as Currency devalues by 46% in Currency Wars. Venezuela devalued its currency – the Bolivar for the fifth time in nine years. Just that this time it took a gigantic step in a massive currency devaluation, re-pegging it’s currency to a value of 6.3 / US Dollar from its previous official exchange rate of 4.3 / Dollar. This marks the entry of one more nation into the soon heating up & so-called Currency Wars where many countries are competing towards the bottom in order to increase their export competitiveness. This move may undermine support for ailing President Hugo Chavez and his allies ahead of possible elections later this year. Chavez ordered his government to weaken the exchange rate by 32% to 6.3 bolivars per dollar starting Feb 13, Finance Minister Jorge Giordani told reporters yesterday in Caracas. The ailing President Hugo Chavez seeks to narrow a widening fiscal gap and reduce a shortage of US Dollars in the Economy.
Bloomberg’s Charlie Devereuz and Corina Pons explain:
This devaluation can help narrow the budget deficit by increasing the amount of bolivars the government receives from oil exports but the move also threatens to accelerate annual Inflation that reached 22% in January. A spending spree that almost tripled the fiscal deficit last year helped Chavez win a third six-year term. Venezuela’s fiscal gap widened to 11% of Gross Domestic Product last year from 4 percent in 2011, according to Moody’s Investors Service. Giordani said that while the government has sufficient revenue, devaluing will encourage more efficiency in the economy. The weaker exchange rate will give the central government an additional 84.5 billion bolivars ($13.4 billion) in revenue, mostly from oil sales done in dollars, according to Caracas-based research company Ecoanalitica. “This isn’t a change that was done for fiscal reasons,” he said. “We have sufficient revenue but we need to adjust the accounts. We need an increase in efficiency and efficiency means spending less.” Annual inflation accelerated to 22.2% in January, the fastest pace in eight months, led by a jump in food prices. Prices climbed 3.3 percent in January after rising 3.5% in December. In the unregulated market, the bolivar weakened 6% yesterday to 19.53 bolivars per dollar, according to Lechuga Verde, a website that tracks the rate. Venezuelans use the unregulated credit market because the central bank doesn’t supply enough dollars at the official rates to meet demand. While Bank of America’s Rodriguez estimates that devaluing the currency will reduce the government’s budget deficit by half, he said the government will have to take further measures within the next year. “It gets them through their most urgent problem which is to generate more bolivars to finance the current spending flow,” Rodriguez said. “This is a move that will turn out to be temporary. They will have to devalue again by the end of the year.”
The term “Currency Wars” describes the series of competitive devaluations adopted by rich nations to bolster their exports amid the global slowdown to the detriment of emerging market nations. These wars could get deeper & more & more countries jump into the fray. France plans to take its concerns over the Euro to the G20 meeting in Moscow, warning that a stronger euro may hinder Europe’s painfully slow recovery and ultimately the world’s. French President Francois Hollande added to fears of a renewed global currency war on February 5 when he called for a weaker euro and urged the Eurozone to set a mid-term target for its exchange rate.
In the Currency Wars- Trust nothing but Gold and Silver:
Just imagine the plight of the people in Venezuela who wake up one fine morning & find that the prices of Gold and Silver have suddenly shot up by close to 50% overnight. 50%! – You read right & its not a SALE of upto 50% but a HIKE of upto 50%. Worse even? Imagine the plight of those who have not invested or owned any Gold or Silver Bullion. Their buying power has simply slumped nearly 50% overnight for no apparent or convincing explanation at all. The only people saved by this devaluation are the wise ones who kept invested their faith & paper money in Gold and Silver. The plight of the ones who trusted the paper money – the lesser spoken, the Better. What if this happens to you & your paper money? Have you safeguarded yourself & your family well against the Currency Wars going on worldwide? Just recently, Japanese people saw the price of Gold Bullion in Yen terms shoot to the stars. You may also see the same soon enough.