In Jose Guerra’s opinion, National Assembly Deputy, of the three attributes that a currency should have, that is, to serve as a medium of exchange, unit of account and reserve of value, the bolivar literally does not retain any of the aforementioned attributes.
“The hyperinflation process has been so virulent that the exchange rate of the bolivar against the dollar has depreciated more than 50% in the month that just ended,” he said.
The deputy also indicated that “with an exercise of simple aggregation of the amount of zeros that was taken from the bolivar in January 2008 and August 2018, it would place the price of one dollar at Bs. 1,200,000,000,000, that is, to buy a dollar today, one billion two hundred billion bolivars of 2008 will be required ”.
“This debasing of the value of the bolivar is the direct consequence of a menu of destructive policies that originate in a fiscal deficit financed with money printing. Fiscal deficits that in the last five years have averaged 15% of GDP, of which more than half is financed with the creation of money by the BCV, this inevitably had to degenerate into hyperinflation, as indeed has happened”, said Guerra.
However, Guerra said that “the fundamental issue today is to define a policy to stop hyperinflation, which necessarily involves restoring the health of public finances and that the BCV does not issue money from nothing, but rather organically, according to the amount of international reserves it has and genuine internal assets. But that is not enough.”
“At this point in the crisis, something else must be done and this implies the replacement of the bolivar with a new currency, anchored in a fixed relationship with the dollar so that currency cannot be devalued for a reasonable time lapse”, he said.
Guerra pointed out that this was what Germany did, as was planned and coordinated by Ludwing Erhard in 1948 by which the Reichsmark was replaced by the Deutsche mark, once the controls inherited from the Nazis were dismantled and from that point on the social market economy was born; Brazil with the creation of the Reais in 1994; and Bolivia, on July 29, 1985, when Supreme Decree 21.060 was approved, which allowed the creation of the Bolivian to substitute the discredited peso.
“Something similar was done in Israel in 1985. Peru in 1992, among many other countries that in the midst of hyperinflation adopted fiscal and monetary measures to stabilize their economies and simultaneously replaced their currencies worn out by inflation and successive devaluations,” said the deputy.
In this regard, he stressed that “in Venezuela you have to implement a new national currency because any economic program will have the imprint of a bolivar that has gone through two failed currency conversions and therefore the public will not trust it”
The first thing is proceed to define a conversion rate of the current bolivars to the currency to be adopted and this is would be fixed with a one-to-one rate with the dollar, that parity couldn’t be modified for a certain period, preceded by an agreement of massive external financing and a deep reorganization of the economy.
“With the Country Plan an opportunity is opened to think about this option to achieve the elusive monetary stability in Venezuela and thus be able to improve the salaries of Venezuelans,” he added.