Interview: Venezuela's currency re-denomination to help curb inflation, says expert

CARACAS, March 26 (Xinhua) -- Venezuela's re-denomination of national currency bolivar by knocking off three zeros will help the South American country curb inflation, Venezuelan economist Luis Gavazut has said.

President Nicolas Maduro last week announced the measure to divide the bolivar currency by 1,000 from June 4. This is part of a series of economic measures designed to alleviate U.S. sanctions in the lead up to Venezuela's presidential elections scheduled for May 20.

Recently, Venezuela also unveiled the oil-backed cryptocurrency Petro in an investment bid as sanctions have closed off its access to capital markets.

The bolivar's re-denomination complements the launch of the Petro, "which has a very good outlook in stabilizing the currency exchange rate," Gavazut told Xinhua in a recent interview.

Maduro's government has said the bolivar's exchange rate against the U.S. dollar is often manipulated to weaken the Venezuelan economy, undermining the socialists' rule in the country.

"Everything indicates that the Petro will have a positive impact on containing inflation, by having a deflationary effect and strengthening economic variables," Gavazut said.

With that in mind, it makes sense for the government to introduce new banknotes, he said.

"If you succeed in anchoring the bolivar to the strength of the Petro, with a DICOM (floating exchange) rate anchored to the Petro, you would be anchoring and tying the bolivar to the strength of the Petro," Gavazut added.

It will "guarantee that the sovereign bolivar stays strong, that it can serve as a store of value for the country's economic players," the economist said.

In Venezuela, latest official inflation figures are not available. The central bank reported the 2016 inflation rate was 274.4 percent. According to the opposition-controlled National Assembly, inflation in the first quarter of the year will be above 231 percent.

Latin American countries including Argentina and Brazil have over years repeatedly taken similar measures of national currency re-denomination, according to Gavazut.

The last time that Venezuela lopped three zeros from its currency was a decade ago, when inflation was at over 30 percent.

"When you have hyperinflation you have to re-denominate your currency. Brazil has undertaken some 10 times of re-denomination. We are just starting our second," said Gavazut. Enditem