Tag Archives: currency

2011-04-20 Geoff Golder on the New Crypto-Currency BitCoin

Local software developer Geoff Golder comes on the program to explain and discuss the implications of the newly developing online currency called BitCoin.

[blip.tv http://blip.tv/play/AYK0w2MA%5D

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Venezuela’s currency devaluation

Remember the show “Who wants to be a Millionaire?” when contestants had three life lines at their disposal, to use if they didn’t know an anwser.  I was always impressed by the consistent accuracy of the ‘poll the audience’ lifeline, indeed it was almost a giveaway to the player.  I agree with the argument that when a large group of people try and work on a problem collectively, the result is often obtained inefficiently and with more error; in the show however, each person was able to think about the problem individually and vote with their hand held device, so the collective audience was almost always right.  The people of Venezuela can relate to this concept, because today the value of every bolivar in their wallet was halved.  Hugo Chavez announced that the 5 year currency peg would be changed to make each US dollar worth 4.3 bolivar, up from 2.15.

His expectation was that everyone would trust his decision and believe his claim that exorbitant inflation would be offset by the economic contraction of their recession.  Well, let’s say that Mr. Chavez is the contestant and that reasoning is answer A, which he votes for and unfortunately loses his chance at a million dollars.  If only he had polled the audience (Venezuelan citizens), who unanimously knew the answer to be B, which is that inflation is never good for the majority of a society and they should flood every retail store in the country to buy things that their leader can’t cut in half.  This is exactly what happened.

The people of Venezuela should be offended that this surprised Chavez, for clearly he assumed they had no common sense whatsoever.  His quotes in the Wall Street Journal include,  “I don’t understand why people are standing in line. They are victims of terrorist media campaigns creating fear that prices will rise” and “We will seize any businesses and shops that are participating in speculation and raise prices.”  That’s good Mr. Chavez, point a gun at any small business owner who does not sell everything at half-off to the 60 people standing in line at the checkout, beautiful economics.  On the bright side this is good news if you word for the State, because oil revenues just doubled which the government can spend on all sorts of projects and new employment.  It is unlikely that this will be good for the long term.

A couple other notes about this news is the currency rate for ‘necessities’ was only raised to 2.6 bolivar/dollar, so poor people at least can still eat.  Bond raters have also been skeptical about giving Venezuela a positive rating, despite the recent cash infusion.

author: Marek Hirsch

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