Fiat currency - No intrinsic value and at the mercy of the government and fx junkies.
From Bloomberg.com
Original source
Venezuela devalued its currency for the fifth time in nine years, a move that may undermine support for ailing President Hugo Chavez and his allies ahead of possible elections later this year.
South America’s biggest oil producer may have to call elections if Chavez, who hasn’t been seen for two months after undergoing cancer surgery in Cuba, dies or steps down. He ordered his government to weaken the exchange rate by 32 percent to 6.3 bolivars per dollar starting Feb. 13, Finance Minister Jorge Giordani told reporters yesterday in Caracas.
A spending spree that almost tripled the fiscal deficit last year helped Chavez, 58, win a third six-year term. The devaluation can help narrow the budget deficit by increasing the amount of bolivars the government receives from oil exports. Yet the move also threatens to accelerate annual inflation that reached 22 percent in January.
“There is surely going to be a political cost, which may weigh against the Chavistas and hence be viewed favorably from the markets if it shifts protest votes to the opposition,” Siobhan Morden, the head of Latin America fixed income strategy at Jefferies Group Inc. in New York, said in a note to clients.
Former opposition presidential candidate Henrique Capriles Radonski said the measure “mocked Venezuelans” and he criticized the government for attempting to hide the impact of the devaluation by announcing it the day before the annual carnival holidays.
“Oil is at $106 and they have to devalue!” Capriles, who lost to Chavez by 11 percentage points in elections last October, said in a message posted on his Twitter account. “They spent the money in campaign, corruption, presents abroad! Lying government!”
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