On October 1st, the new Venezuelan currency came into effect: the digital bolívar, which has six fewer zeros compared to the Sovereign Bolívar. The previously used monetary expression had bills ranging from 100,000 to 1 million – in the new conversion, they range from 5 to 100 bolívar.
This was the third monetary reconversion since 2008 in the country that, in the last 13 years, has eliminated 14 zeros from its currency. The latest measure came as a way to try to combat hyperinflation in the country, which has now lasted 44 months, the devaluation of the old bolívar and aim at a possible economic recovery.
The statement from the Central Bank of Venezuela (BCV), released by Freddy Ñáñez, Minister of Communication, explains that this change is based on the development of the digital economy in the country and reinforces its importance for the economic recovery in the country – with the devaluation of the sovereign bolívar, the highest denomination banknote – 1 million – was equivalent to US$ 0.25. Now, the highest denomination will be equivalent to US$ 24.
According to data from the Central Bank itself, in August 2018 and May 2021, the devaluation of the bolívar was 62,644% and this year’s inflation was estimated at 1,142.8%. It is the highest in the world, surpassing even Zimbabwe, an African country that was, for years, the most inflationary at global levels.
The loss of value meant that physical banknotes practically disappeared in the country, the dollar was mostly used for cash payments, while the national currency was used for digital transfers – another reason that led to the conversion.
Therefore, as the report informs, the measure came about as a way to facilitate transactions, maintain the inclusion of all Venezuelans and meet their needs. However, the physical and digital forms of the currency will not annul each other, but rather coexist, and the Central Bank assured that the change does not interfere in the value of the currency and that it will continue issuing the notes. In addition, the old notes will continue to circulate for the next few months before being cancelled.
The change is familiar to Venezuelans, due to the exchanges that have taken place in recent years. However, Venezuela has not yet managed to recover its purchasing power and is once again experiencing an economic crisis.
Despite being somewhat accustomed to the conversions, this measure generates anxiety among citizens who, in the weeks before the new currency became official, sought to organize their finances, getting rid of their bolivars and exchanging them for international bills. In addition, banks stopped working and businesses didn’t open in order to adjust to the figure and try to measure its possible impacts.
The last major economic reform, carried out in 2018 by the Maduro government, raised wages, ended currency controls and reduced the liquidity of bolivars, which helped slow the pace of inflation, but as a result led to the forced dollarization of the economy – which, today, is one of the main reasons for the new cipher exchange.
In May of this year, the minimum wage was established at 10 million bolivars, which became 10 at the current exchange rate, equivalent to US$2, and has been increasing the debates around the need for a readjustment.
Recently, the Central Bank of Venezuela had access to $5.1 billion in working capital rights from the International Monetary Fund (IMF), which increased the national reserves by 80% and, according to estimates from companies and consulting firms, the country may end the year with a 3% economic growth.
However, in almost a month since the adoption of the digital bolívar, it is still early to measure the impacts this has already caused and will still cause in the Venezuelan economy. Currently, according to the new Living Conditions Survey, presented by the Andrés Bello Catholic University, 94.5% of Venezuelans are poor and 76.6% are below the extreme poverty line – the scenario has been greatly aggravated by the supply crisis in the country -, and about 8 million are unemployed.
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The article above was edited by Gabriela Sartorato.
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