In the third banknote reform in the last thirteen years, the Venezuelan government has slashed six zeroes off its inflation-stricken currency in order to simplify transactions.
Vice President Delcy Rodriguez said, “It (the bolivar) is not going to be worth more, it’s not going to be worthless, it’s just a monetary scale that we’re applying by removing six zeros to facilitate transactions.”
The official exchange rate of Venezuela’s bolivar with their recent reform went from 4.18 million to the US dollar to just 4.18 overnight as the impoverished country slashed six zeroes off its inflation-battered currency.
In a statement on Friday, the Central Bank of Venezuela said, “Everything expressed in national currency shall be divided by a million.”
The government issued new banknotes in denominations of 5, 10, 20, 50, and 100 bolivars, as well as a one-bolivar coin, but has said that it wants the economy to become entirely digital.
Analysts read this as a way to avoid printing money that will just continue devaluing, eventually requiring another readjustment.
A 52-year-old Venezuelan housekeeper said that she faced no problem in the shopping last morning as the new prices were displayed above the old ones and that the prices as mentioned in dollars which has not changed.
The woman added that she had paid at old prices using old bolivars when she took the bus from her neighborhood of Coche.
She said, “I made purchases this morning without problems,” adding that she used her debit card which is the preferred method of payment when dealing in bolivars.
The electronic platform of the public bank of the Venezuela which has 14 million clients was also down by mid-afternoon as those trying to make transactions were encountering apologizing messages for the inconvenience.
By morning, some shops had already adopted the new bolivar and re-priced their goods. Some fearful of operational problems limited bolivar-based transactions.
Jose Grasso Vecchio, president of Venezuela’s largest private bank, Banesco, said the new, lower denominations would make the work of banks “easier, faster.”
According to Luis Arturo Barcenas of Ecoanalitica, the new readjustment policy of the government reflected the lack of capacity by the economic actors in Venezuela to control hyperinflation that has greatly impoverished the population.
Venezuela’s Hyperinflation
Once an oil-rich country, Venezuela is facing its eighth year of a recession caused by US sanctions and worsen by COVID-19. The hyperinflation has reached nearly 3,000 percent in 2020 and more than 9,500 percent the year, according to central bank figures.
Economic consultancy Ecoanalitica expects the 2021 figure to come in at around 1,600.
Earlier in May, the government increased the minimum monthly wage by 300% but the new amount was not enough even to buy a kilogram of meat.
A recent study reported that three in four Venezuelans today live in extreme poverty as the economic crisis is made worse by US sanctions and the coronavirus pandemic.
Millions of people have left the country in recent years to try their luck elsewhere.
Worth of Bolivar
The bolivar is losing nearly all its value, seventy one-million bolivar notes were needed to pay for one loaf of bread before Friday’s currency update.
The biggest note in the retiring bolivar family with a face value of a million is worth barely $0.25 not worthy to buy candy. The old notes will remain in circulation in parallel with the new notes for a few months.
With so many bolivars required for a simple purchase, and with notes in short supply, 70 percent of transactions in the country are conducted in US dollars, according to private sector estimates.
Prices on many shop shelves are displayed in the US currency, to keep things simpler.
In Venezuela’s border regions, it is common to also pay for goods in Colombian pesos or Brazilian reais, and even grams of gold.
In the 24 hours leading up to Friday’s recalibration, the dollar soared on the black market through the central bank kept the official exchange rate stable.
