The Saga of Venezuelan Bolivar Fuerte Essay Example | Topics and Well Written Essays - 2000 words

The Saga of Venezuelan Bolivar Fuerte - Essay Example Bolivar fixed exchange rate to the dollar has been increasing meaning it has been losing value to the dollar. This leads the government of Hugo Chavez to establish strict currency controls in efforts to counter budget deficits. The currency controls however have caused currency devaluation that has disrupted the economy. From 8th January 2010, the fixed exchange rate was Bs.F. 2.15= 1 dollar but by 13th February 2013, the fixed exchange rate was Bs.F. 6.3= 1 dollar (Trinkunas, 2014, p. 1). Between 2003 and 2013, there were a total of four devaluations of the Venezuela currency. Every devaluation generated more Boliver per dollar hence increasing more money to be spent by the Venezuela government. A country will devalue its currency any time it cannot maintain the fixed market exchange rate (Boyes & Melvin, 2012, p. 408). To be able to maintain the market foreign exchange rate, a country utilizes its reserved foreign currency to acquire back home currency. Venezuela government was not able to buy back home currency since its value had dropped against the dollar. Devaluation enabled the government to buy back home country at an affordable rate while at the same time promoting exports. By increasing exports, Venezuela was guaranteed of increased revenue since local monetary resources from oil exports increased significantly. This extended essay aims at explaining the timeline under which Venezuela currency has undergone devaluation. The essay will address issues on restri ction, black market, increased prices, and devaluation effect on inflation. Hugo Chavez is the mastermind behind currency exchange controls. Hugo Chavez took office as the president of Venezuela in February 1999. While in office, crude oil prices plunged and four years later he was overthrown for at least 47 hours before fighting back for power through flaunting the constitution.