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Venezuela has cut off six zeros from its currency in another attempt to make the bolívar more manageable and re-brand it after years of hyperinflation.
On Friday, new bolívar notes came into circulation, with one new bolívar worth 1m old. There are currently about 4.2 million old bolivars against the dollar, so one new bolivar is worth about 24 cents. The new notes range from five to 100 bolívars and there is a 1 bolívar coin.
This is the third time that Venezuela’s revolutionary socialist rulers are pruning the currency. In 2008, President Hugo Chávez cut three zeros from the banknotes and in 2018, amid hyperinflation, his successor and current leader Nicolás Maduro got rid of five more and the currency devalued by 95 percent.
The new banknotes have a name change. It is now the ‘digital bolívar’, although it is no more digital than any other currency. The previous incarnation was the ‘sovereign bolívar’ and the former the ‘strong bolívar’.
Eliminating the zeros should make life easier for long-suffering Venezuelans who have faced dizzying numbers, although it is unlikely to have a major impact on economic fundamentals.
“The only thing is that bank transfers will have fewer zeros,” said Henry Andrade, a fruit and vegetable trader from the western state of Táchira on the border with Colombia. ‘Here in the town where we live, the only currency circulating is Colombian pesos and dollars. The only thing we use bolívars for is to buy pesos. ”
The Venezuelan economy it collapsed since Maduro came to power in 2013, and the country is undergoing tremendous price increases.
Steve Hanke, a professor of applied economics at Johns Hopkins University, says the first hyperinflationary battle, from 2016 to 2019, lasts 28 months – the fifth longest on record. A second match in 2020 lasts nine months.
According to the Venezuelan Observatory of Finance (OVF), a non-governmental body that measures price increases slightly differently, hyperinflation started in 2017 and did not stop, making it the second longest game on record in the world, by Nicaragua alone. in the late 1980s.
The sustained price increases have encouraged people start using dollars. Even if Venezuelans use bolívars these days, for example to pay utility bills, they tend to pay with debit cards to avoid the hassle of heaps of cash.
“Dollarization has helped because things have allowed for equalization and stabilization,” says 62-year-old Carmen Gutiérrez, owner of a small clothing store in Caracas.
Local consultant Ecoanalítica said more than two-thirds of financial transactions in Venezuela is now made in foreign currency, mainly the dollar.
In recent months, inflation has weakened although it still amounts to more than 1,700 percent per year, according to the OVF. In August, monthly inflation was relatively modest 10.6 percent, and it has been below the hyperinflationary threshold of 50 percent for the past six months.
“Venezuela’s spontaneous dollarization has cut its bones under the country’s hyperinflation,” Hanke said.
The government blames US sanctions for the economic woes of Venezuela, even though the economy began to crack before Washington introduced its first sector-wide measures.
At the launch of the renewed currency, the Maduro regime claimed to have been the victim of a ‘brutal attack on our economy’ [and] our national currency “via” the criminal application of an economic and financial blockade “.
“We all have the consequences,” said 71-year-old Fernando Alvarado, a retired government employee and government supporter. “These are the people who suffer”.
The government said the digital bolívar ‘will help deepen and develop the digital economy in Venezuela’ and promised to create a digital currency, saying ‘the physical and digital bolívar will live together’.
But this seems unlikely in a country where power outages occur frequently and cell phone coverage is low. ‘There is no infrastructure for that. It is not deep, it is not stable and it is not widespread, ”says Tamara Herrera, director of the local consultant Síntesis Financiera.
In 2018, amid great uproar, the government launched an oil-backed cryptocurrency die petro, which sank largely without a trace.
“No one has ever paid us in petros,” said fruit and vegetable wholesaler Andrade.
While the introduction of the new banknotes holds practical benefits for buyers and retailers, and may even persuade some to reuse the national currency, it has also caused confusion.
One shopkeeper, who asked how many zeros are being taken out of the coin this week, replied: “five”. Asked how much a bag of flour would cost now, she said: ‘One bolívar, I think. No, five! ”