On This Day in 2013: Venezuela Devalued Its Currency

Monday, February 13, 2017


Venezuela's government devalued the country's currency amid questions about how the government can get a grip on 22% inflation and satisfy growing demand for dollars to pay for imported goods.

The fifth devaluation in a decade established a new government-set rate of 6.30 bolivars to the dollar, replacing the previous rate of 4.30 bolivars.

Devaluation is a deliberate downward adjustment to the value of a country's currency relative to another currency, group of currencies or standard. Devaluation is a monetary policy tool used by countries that have a fixed exchange rate or semi-fixed exchange rate. It is often confused with depreciation, and is the opposite of revaluation.

Currency devaluations can be used by countries to achieve economic policy.

Having a weaker currency relative to the rest of the world can help boost exports, shrink trade deficits and reduce the cost of interest payments on its outstanding government debts. 

There are, however, some negative effects of devaluations. They create uncertainty in global markets that can cause asset markets to fall or spur recessions. Countries might be tempted to enter a tit for tat currency war, devaluing their own currency back and forth in a race to the bottom. This can be a very dangerous and vicious cycle leading to much more harm than good.
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