Here they go again! A cautionary tale of a government gone wild resulting in gut-wrenching inflation and 76.7% of the population living in extreme poverty.
Venezuela is launching a new version of the bolivar in the latest attempt to salvage a currency so beaten down by years of hyperinflation that residents have adopted the U.S. dollar.
The so-called digital bolivar, which is being introduced Friday, effectively removes six zeroes from the “sovereign bolivar,” which started circulating just three years ago.
New banknotes and coins will be put into use. Bank accounts will be adjusted to reflect the redenomination. And debit and credit card purchases will become easier: there were so many digits involved in some transactions that merchants were forced to split the transaction into multiple card swipes.
It’s another maneuver aimed at propping-up the national currency, even though President Nicolas Maduro’s government is permitting the use of the U.S. dollar as a way to cope with runaway inflation and shortages. The government has implemented two other currency changes since 2008, dropping eight zeroes. Hyperinflation, among the highest in the world, has slowed to 2,146% per year from more than 300,000% in 2019, according to Bloomberg’s Cafe Con Leche index.
Under Friday’s change, the largest former banknote, for 1 million bolivars — worth about $0.23 –will be replaced by a 1-bolivar coin. One dollar will fetch around 4.2 bolivars instead of 4.2 million bolivars at the official exchange rate.
“This is useless. Prices will continue to rise and, in a few months, the new bills will be useless,” said Leida Leon, a 37-year-old cleaning worker at a Caracas school.
And Venezuela’s official inflation rate for household goods is a blood-curdling 4,245% YoY.
On Thursday, demand for dollars rose as people feared a prolonged suspension of banking services as the redenomination is rolled out, said Luis Arturo Barcenas, senior economist at Caracas-based financial analysis firm Ecoanalitica.
Two-thirds of retail transactions involve the U.S. dollar, according to Ecoanalitica. Yet, many Venezuelans need bolivars for everyday transactions, like bus fares and to buy gas subsidized by the government. While the government is attempting to boost the use of digital payments, many regions are beset by regular electrical blackouts that affect communications.
Venezuelans have faced disastrous government policies and pressure from U.S. sanctions that have put the country on the brink of its eighth-straight year of economic contraction. More than 5 million people have fled the country, once one of Latin America’s wealthiest.
An estimated 76.6% of Venezuelans are living in extreme poverty, up from 67.7% last year, according to a university survey on living conditions known as Encovi.
As least Venezuela’s Treasury Department could produce a likeness of Simón Bolívar (aka, Simón José Antonio de la Santísima Trinidad Bolívar y Ponte Palacios y Blanco) that doesn’t look like a bad cartoon character.