| Each year governments around the world regularly | | | | discount). Now the Bolivar is devalued from 2.15 to 4.6 |
| bankrupt their local small business owner. While some | | | | per dollar which means the new wholesale price |
| times it is through nationalization, often it is through the | | | | increases from Bs. 700 to nearly Bs. 1500. However, |
| mismanagement of the financial regulations within their | | | | when the government devalues the Bolivar, they also |
| own country. Laws intended to increase government | | | | insist that retailers not change prices. So, the most a |
| revenue or general population well being often have | | | | retailer can legally retail the widget for is still Bs. 1000. |
| the unintended and unfortunate impact of eliminating | | | | Which means this retailer would need to sell three |
| small businesses and the revenue they generate. This | | | | widgets to get enough capital to buy 2 widgets at |
| happens most often in countries dealing with | | | | wholesale! From a business perspective this means |
| unfortunate and unexpected financial crisis. | | | | that the business losing much of its working capital! |
| Take Venezuela for example. This weekend Chavez | | | | For many businesses in Venezuela, this will be a tough |
| announced that the Bolivar would be devalued. By | | | | year to try to survive. It has been reported that many |
| devaluing the currency, all oil sold in dollars will be | | | | owners are risking their business by changing prices to |
| exchanged for almost double the going rate of Bolivar. | | | | match inflation (Chavez has indicated that businesses |
| Since 2005, the Bolivar had been fixed at 2.15 to the | | | | that change their prices in response to the devaluation |
| US Dollar. In one day, Chavez raised it so that essential | | | | will be "give to their employees"). Yet many owners |
| items, food, medicine etc, will be valued at 2.6 Bolivars | | | | feel that they have no other choice. |
| to the dollar while non essential items (think oil) will be | | | | So, why does this matter? Could this happen in the |
| valued at 4.3 Bolivars to the dollar. This means that if a | | | | US? Obviously Venezuela isn't the only country to |
| $1 in oil were sold, it would no longer generate Bs. 2.15, | | | | experience this. This winter (Dec 2009), Korea |
| but instead will bring in Bs. 4.3. The financial impact this | | | | devalued their currency just this past December and |
| will have on Venezuela will be immense. First, the | | | | confiscated the savings of the "wealthy" leaving them |
| county, a major oil exporter will see a significant rise in | | | | with enough savings to support a family for a few |
| government revenue. Some estimate this gain to be in | | | | short months. Last year, Sweden became the first |
| the billions. But what happens to business owners. If | | | | Western country to deliberately devalue its currency. |
| history repeats itself as it has for business owners | | | | As countries attempt to "fend off" the recession, it is |
| who saw other currencies devalued, many business | | | | important to keep aware of government decisions, |
| will now be forced into bankruptcy... here is how it | | | | policies and most of all "help" as many of these |
| works. | | | | activities could have significant financial consequences |
| Business A sells widgets that retail at Bs. 1,000.00. The | | | | for small business owners. |
| wholesale price of these widgets is Bs. 700 (a 30% | | | | |