Venezuela has announced that they intend to drop the US dollar as the main trading currency for the country. Instead, they’ve advocated the use of a basket of alternative currencies. On the table right now are the Russian ruble, the Chinese Yuan, Japanese Yen, the Indian Rupee, and possibly the Euro. This will be the sixth major currency reform under the current president Nicholas Maduro since he’s taken office.
The Venezuelan economy is being utterly battered by attacks both domestically and internationally, primarily by the US. As it is foreign currency reserves are at an all time low. Inflation has reached upwards of 720%. Oil prices have absolutely devastated the economy for the last few years. US sanctions have hammered the economy something fierce. The economy really is in a dire straight, but it is, however, not beyond repair.
Foreign exchange reserves are the problem that is currently being tackled by the government with this new monetary policy: “Foreign Exchange Reserves in Venezuela decreased to 10007 USD Million in June from 10577 USD Million in May of 2017. Foreign Exchange Reserves in Venezuela averaged 12174.60 USD Million from 1962 until 2017, reaching an all time high of 42299 USD Million in December of 2008 and a record low of 514.50 USD Million in September of 1962.” (TradingEconomics.com)
Difficulties in Ditching the US Dollar
Using the US dollar for international exchange is quite advantageous. Coming out of the Bretton Woods agreement in 1944 it was made the world’s reserve currency. In other words, all accounts could be settled with US dollars. As it is, everyone uses US dollars for international trade just for this reason. Countries are happy to collect a cache of US dollars in their central bank because they can be used again for other transactions, because of its great use in trade. This is not quite the case with other currencies. They are used no doubt. But they’re harder to move around than US dollars which are taken by everyone. Not everyone accepts other currencies and often extra agreements must be made in order to use other currencies. Having stock piles of other countries currencies isn’t as convent as having US dollars.
Using the US dollar for international exchange is quite Since the US dollar is the world’s trading currency, countries who do a lot of trade with the dollar often peg their currency to it. The means any fluctuation in the value of the US dollar has serious effects for those countries currency’s value. Currently, Venezuela has their currency pegged to the US dollar. This makes it vulnerable to manipulations by the US. A rise in the value of the US dollar diminishes the ability of those lower GDP countries to export to the US and other first world countries.
Why Ditch the US Dollar?
The reason trade will be done in alternative currencies is due to a scam that many large corporations are pulling in the country. The scam works like this: a company goes to the central bank and purchases US dollars to purchase imports. The company then imports half of what the claimed they were going to. They mislead the economy on a number of goods coming into the economy to throw off market prices and cause shortages. The remaining unused US dollars go into an offshore bank account to be hoarded.
The effect of this is to drain the Venezuelan central bank’s stock of US dollars which it uses for trade. Once their stock runs dry, they’ll be left without the currency used for international trade. This is particularly bad when it comes to imports which the country needs as most of its food is procured that way. The sabotage actions by these capitalists are draining the foreign currency reserves of the central bank which are used for international trade.
Since the US dollar reserves are being crushed, they are in desperate need of alternative currencies for trade. This is where a basket of currencies comes in. Trading with multiple currencies (aside from being absolutely necessary) makes it much more difficult for this sabotage effort to be carried out.
It is by no means a preferential solution. Plenty of economic problems still remain that will lay unaddressed by this new measure. What Venezuela really needs is to move ahead with the socialist project and actually ban capitalism. They need to abolish such market relations and implement a socialist state control of the economy, rather than allow the capitalist class to continue to exist and sabotage the economy in this way.
That would be my criticism of president Maduro, he has not taken a hammer to the bourgeoisie and expropriated their private property and place it under a state economic plan.