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Chavez Revives Historic Coin in Campaign
By Matthew Walter

Venezuelan President Hugo Chavez's latest effort to reduce Latin America's highest inflation rate revives a coin rooted in Venezuela's colonial past: the ``locha,'' based on the old Spanish ``piece of eight.''

The locha is worth 12.5 cents, or an eighth of a new ``strong bolivar,'' a currency that debuted today with seven new coins and six new bills. Chavez says the new bolivar, created by lopping three zeros off the old currency, will simplify pricing and help slow consumer price increases.

``During the 1940s and through the 1960s, the locha was one of the most popular coins,'' Armando Leon, a director of the central bank, said in an interview in Caracas. ``It circulated during a very long period of stability.''

Chavez may be bringing back the locha to restore confidence in the economy amid the fastest inflation in almost five years and shortages of milk, eggs and sugar. If so, the attempt isn't likely to succeed, said Miguel Carpio, chief economist at Banco Federal SA in Caracas.

``One of the intentions of this monetary conversion is, in some ways, to bring back these memories of good times, when really the indicators say the opposite,'' Carpio said.

The locha was an adaptation of a 19th-century coin called the ochava, Leon said. Both were derived from the ``piece of eight'' monetary system imposed by Spanish colonial rulers.

From 1951 to 1969, the last year the locha circulated, consumer prices rose an average 1.3 percent a year, according to the central bank. Since the 1970s, annual inflation averaged 24.7 percent.

`Adjusting and Correcting'

By revamping the currency system, ``we're ending a cycle of price instability and simplifying a monetary scheme with large denominations,'' Finance Minister Rodrigo Cabezas said in an e- mailed statement Dec. 28. ``We're adjusting and correcting what should have been corrected years ago.''

The locha used to cover the cost of a bus ride and a loaf of bread, said Enrique Bernal, a professor at the Universidad Central de Venezuela, who has published a magazine on coin collecting for the Venezuelan Numismatic Society since 1980.

It was so common that people used it to measure food, ordering cheese by the locha, he said.

Chavez, 53, recalled in a March 1 speech that when he was a child he was able to purchase a piece of candy with one locha, while a bolivar bought a kilogram of meat.

Subway Trip

Today it would take 7.2 lochas to buy a round-trip ticket on the Caracas subway. Consumer prices rose 20.7 percent in November from a year earlier, above the government's 12 percent target for 2007.

Oil exports have risen for the fourth consecutive year, driving up demand for everything from groceries to cars. As of November 2007, automobile sales were up 46 percent from a year ago, and bank lending surged 72 percent.

At the same time, price controls in place since 2003 have discouraged investment in food production and manufacturing, leading to nationwide shortages that have pushed prices higher.

``Aggregate demand is outstripping supply, and the economy hasn't responded with more productivity,'' said Boris Segura, an economist at Morgan Stanley in New York. ``You have abundant revenue, but you have shortages and inflation.''

The central bank's failure to control prices and Chavez's socialist economic policies have led investors to dump the bolivar. Officially, the currency has weakened 74 percent since the president first took office in 1999. The bolivar has been fixed at 2,150 per dollar since 2005. The new currency is worth 2.15 per dollar.

The black-market exchange rate, which developed after the government imposed exchange controls in 2003, plunged 40 percent in the past year alone, trading at 5,700 per dollar on Dec. 26, traders said. The rate in new bolivars would be 5.70 per dollar.

Some shoppers insist the locha will mean higher, rather than lower, prices.

``The store is always going to round up,'' said William Vivera, 34, an electrician in Caracas. ``The locha's going to be hard to manage for consumers and for stores.''

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