Venezuela will drop three zeroes|
June 08, 2018
“Let’s defend our bolivar!” is the catch phrase declared by Venezuelan President Nicolas Maduro in a March television interview in which he announced major changes coming to the South American nation’s currency.
What Maduro calls a “redenomination” is actually a devaluation of the currency. On June 4, bank notes identical to those now in circulation were to appear; however, the denomination appearing on each new note was to be minus three zeroes. In other words, the current 100,000-bolivar bank note would in theory be replaced with a note of 1,000 bolivars. Even then, this new note would have an exchange rate value of less than U.S. 50 cents on the black market. There are no plans to replace this denomination.
Venezuela’s currency situation has become dire due to mismanagement of the nation’s socialist economy. Venezuelan opposition politicians claim the inflation rate was above 6,000 percent for the 12-month period ending in February. On Jan. 25, Bloomberg News suggested the inflation rate for 2018 will be more than 13,000 percent. In early February, the local Venezuelan newspaper The Blaze put the rate at a more moderate 4,000 percent.
On March 22, the Associated Press indicated a kilogram (2.2 pounds) of sugar cost 250,000 bolivars, while the minimum wage for one month was less than 400,000 bolivars.
The most current issue of MRI Bankers’ Guide to Foreign Currency identifies 500- and 1,000-bolivares bank notes as “being considered” but doesn’t list any bank notes as currently circulating. Instead the publication reports, “At the current ‘free’ market rates none of the current or outmoded notes are worth more than 10 U.S. cents. None are listed because of the low value.”
Maduro was the Minister of Foreign Affairs under President Hugo Chavez between 2006 and 2013. He served simultaneously as vice president between 2012 and 2013, when he became president. Maduro is now seeking re-election. His main opponent is Henri Falcon, who proposes dollarizing Venezuela. Maduro is trying to combat inflation using the same tactic as did Chavez in 2007, dropping several zeroes from each coin and bank note denomination.
Asdrubal Oliveros is the director of the economic data firm Ecoanalitca in Caracas. Oliveros recently tweeted, “Dropping three zeroes from the currency without solving the problem driving hyperinflation will help nothing.”
According to Maduro, the new currency will consist of two yet-to-be-announced coin denominations and eight paper bank notes ranging from 2 to 500 bolivares in value. No details were immediately available regarding how the conversion will be handled. The 100,000-bolivar bank note now in use would become obsolete after being available for less than one year.
Venezuela is also attempting to outmaneuver U.S. sanctions designed to force the Venezuelan government to bring about democratic changes. This involves issuing its own version of cryptocurrency called the petro. The U.S. Treasury Department has already countered that it is illegal for American citizens to own Venezuela’s digital currency. Currently the United States has sanctions imposed on more than 50 current and former Venezuelan officials and bars U.S. financial institutions from dealing with Venezuelan debt.
No coins are currently in use in Venezuela. Bank notes in denominations of 500, 1,000, 2,000, 5,000, 10,000, and 20,000 bolivares were released in December 2016. Soon afterwards, Maduro announced the 100-bolivares bank note would be withdrawn, blaming the Mafia crime syndicate under U.S. protection for storing these notes in an effort to drive up inflation. It was estimated at that time that about 46 percent of all notes in circulation were of this denomination.
In February 2017, a hoard of 50- and 100-bolivar bank notes weighing about 30 metric tons and valued at about 1.5 billion bolivares was discovered by Paraguay on Paraguay’s border with Brazil. The freshly printed notes appeared to be destined not for Venezuela but to Bolivia, where a favorable exchange rate would allow Bolivia (according to a Pentagon report) to pay 20 percent of Bolivia’s debt to Venezuela while providing Venezuela with U.S. dollars.
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