Venezuela introduces new currency with 6 zeros less
CARACAS, Venezuela – A new currency with six zeros less debuted Friday in Venezuela, whose currency has been rendered nearly worthless by years of the world’s worst inflation.
But the new bills were nowhere to be found in the capital, where consumer fears that prices would continue to climb were proven to be true.
“Today I went to the supermarket and everything was marked in dollars,” said Lourdes Pórtelo, an office worker, in a shopping center in eastern Caracas. “In the end, I couldn’t buy anything, I didn’t have enough money.
Before the adjustment, the highest denomination was a 1million bolivar note that was worth just under a quarter on Thursday. The new currency caps at 100 bolivars, or just under $ 25 – until inflation starts to eat away at that, too.
The million-to-1 change for the bolivar is intended to facilitate both cash transactions and accounting calculations in bolivars which now require juggling nearly endless strings of zeros.
“The most important and basic reason is that payment systems have already collapsed because the number of digits makes payment systems and calculations virtually unmanageable,” said Jose Guerra, professor of economics at the University. central Venezuela. “These debit card payment processing systems or an accounting system for businesses (…) are not intended for hyperinflation, but for a normal economy.”
Under the old system, a two-liter soda bottle could cost over 8 million bolivars – and many of those bills were rare, so a customer might have to pay with a thick wad of paper.
Banks allowed customers to withdraw a maximum of 20 million bolivars in cash per day, or even less if the agency ran out.
As a result, consumers have come to rely on US dollars and digital payment methods, such as Zelle and PayPal, to make their purchases. Most transactions these days are done electronically, and Guerra said over 60% is done in US dollars.
When the Central Bank of Venezuela announced the currency change last month, officials said payment systems would be modernized to expand the digital use of the bolivar.
They also pointed out that removing the six zeros does not otherwise affect the value of the currency. The bolivar “will be worth neither more nor less; it is only to facilitate its use at a simpler monetary scale, ”according to a statement from the Central Bank.
But the currency differences confirmed people’s fears that prices would rise when the currency change occurs.
The dollar on the black market rose by more than 500,000 bolivars on Friday and stood at 5,200,000 in the old denomination and 5.2 bolivars to the dollar in the new currency. The official exchange rate edged up to 4,181,781.84 bolivars, but most businesses use the black market dollar as a benchmark for pricing.
This is the third time that Venezuelan socialist leaders have withdrawn zeros from the currency. The Bolivar lost three zeros in 2008 under President Hugo Chávez, while his successor, current President Nicolás Maduro, eliminated five zeros in 2018.
After more than four years of hyperinflation, many Venezuelans believe the new bills will also be short-lived. The central bank no longer publishes inflation statistics, but the International Monetary Fund estimates Venezuela’s rate at the end of 2021 will be 5,500%.
“I only had 3 million bolivars in my account, with that you don’t buy a single (piece of bread),” said Elena Díaz, a 28-year-old housekeeper, standing in front of a supermarket. “When they take out the six zeros, with those 3 bolivars, I won’t be able to buy anything either.”
The use of greenbacks accelerated after Maduro’s government two years ago abandoned its long and complicated efforts to restrict dollar transactions in favor of the local currency – restrictions that only fueled inflation.
Dollar bills arrive in Venezuela through a network of foreign bank account holders who charge commissions or through people returning home with cash.
Before the change, some stores had already started to display three prices for each product, in US dollars as well as new and old bolivars. On Friday mornings, some were priced only in dollars.
Banks had to freeze their operations for several hours between Thursday and Friday to adjust to the change. In Caracas, many branches did not open on Friday, but according to the Superintendence of Banking Sector Institutions, electronic transactions were active in most banks.
Guerra, who was an adviser to a former opposition presidential candidate, said Venezuelans are now used to currency adjustments – and more could come unless government policies change.
“Basically, if there is no economic program to stop hyperinflation, it will happen again…” Guerra said. “The problem is that hyperinflation was so aggressive in 2018 and 2019 that the conversion of 2018 (when five zeros were removed) was lost in a year and a half.”
Garcia Cano reported from Mexico City.