I just found out the Venezuelan currency is pegged to the US$.

[Commie Pinko Dirtbag]

Could any economy buffs explain to this layman the reasons behind such a policy?

[ramblin_dave]

1. Google "dollarization" for info

Here's one link...

http://www.investopedia.com/articles/04/082504.asp

[Skink]

2. It's all Petrodollars...

[enigma000]

3. A reason

http://www.fxstreet.com/nou/content/113240/content.asp

In the beginning of 2002 Venezuela entered a very tough recession that peaked in early 2003 with production falling nearly 25% in a single quarter. In order to prevent a severe foreign exchange depletion caused by the economic downturn, the government introduced foreign exchange controls. Furthermore, a fix-rate system was introduced pegging the Bolivar to the US dollar. Initially the official exchange rate was set at 1,600 bolivar per USD, but the bolivar was already devalued in February 2004 and again in March 2005, taking the official exchange rate to 2,150 bolivar per USD. However, there is a parallel market in Venezuela where the currency traded at around 2,750 bolivar per USD in December 2005.

Plus 25% of the GDP is from the oil industry, and most of its exports. Pegging the bolivar to the US dollar gives a certain stability.