For the third time in 13 years, the Venezuelan regime has resorted to a currency reconversion to cover the growing hyperinflation that is suffocating the country. The measure will take effect on October 1, and will introduce the ‘bolívar digital’, a new currency with a new name.
2008 was the first time that zeros were removed from the currency. The decision was made by former president Hugo Chávez, who guaranteed that it would help the economic recovery, but his administration only deleted three zeros and did not make structural changes to solve the root of the problem.
The ‘bolívar fuerte’ created by Chávez quickly depreciated. In 2018, his successor, Nicolás Maduro, made a similar decision. On that occasion, five zeros were eliminated from the currency, commencing the days of the ‘bolívar soberano’, which has only been in effect for three years, a record number even for Venezuela’s problems.
The recent economic history of the country is not very encouraging with this new reconversion. Experts on the subject insist that the eliminated zeros will be quickly regained because no measures have been taken to combat inflation. But it is not necessary to be an expert in economy, any resident of the country knows that, very soon, transactions will be made in millions again.
By August, when the measure was announced, the price of US$ 1 was equivalent to 4,000,000 bolivars (Bs.), which means Bs. 4 according to the division that will be made as of October 1. But by that date the reality will be different, because the bolivar constantly fluctuates, changing the figures without any stabilization.
Without the reconversions, one dollar would be equivalent to Bs. 400,000,000,000,000,000,000 at the current exchange rate, an obscene figure that reflects the true economic state that hits Venezuelan families every day.
The conversion is always difficult at the beginning, but people eventually get used to carrying out transactions. The population has already been eliminating three zeros from their daily vocabulary for some time. When making purchases, many people speak of thousands of bolivars and not millions, shortening the figures. Of course, these are just words, all zeros must be reflected in bank transfers.
According to experts, the only advantage of eliminating the six zeros will be to alleviate the accounting processes that were already impossible when dealing with huge figures; besides, people will not get confused when talking about large amounts such as Bs. 400,000,000 (about $100).
The figures would be even worse without the elimination of zeros in previous years, we are talking about 14 zeros being removed in total over 13 years. Without the reconversions, one dollar would be equivalent to Bs. 400,000,000,000,000,000,000 at the current exchange rate, an obscene figure that reflects the true economic state that hits Venezuelan families every day.
Although bills of 5, 10, 20, 50 and 100 (and a coin of 1) will be printed, the name ‘bolívar digital’ reflects the intention to introduce a virtual economy in the country, which has already been present for years since bills began to be scarce in the streets. In fact, almost all ATMs are out of service or only dispense small amounts that are worth less than one dollar.
The problem is that a totally (or almost totally) digital economy is not compatible with the reality of Venezuela. Although there are methods of payment in bolivars, some of them fast, it must be taken into account that failures with telephone signals, points of sale and internet can make a simple transaction a complete headache.
The bolivar in cash is needed for certain services, especially for the city bus. The Maduro administration has shown no interest in proposing measures such as the implementation of electronic tickets or cards, while the population that depends on public transportation desperately looks for bills to get to their jobs.
By October, the smallest denomination currency will be one bolivar, which exceeds the current cost of transportation, this could mean that the price of the urban bus will increase. In the past, the old currency coexisted with the new one for some months, but in general, stores and bus drivers refuse to accept it.
Currently, one of the causes of the shortage of cash is due to the daily depreciation of the bolivar. In eight years, Maduro has launched four families of bills (soon five), all of which have lost value at great speed. The current highest denomination bill is one million bolivars, which is equivalent to approximately 25 cents of a dollar, so for that reason bills of less than 500,000 are rejected in stores as they are practically valueless. In contrast, by October 1, the Bs. 100 bill (currently Bs. 100,000,000) will have an equivalent worth of less than $25.
It is common to see bills that have lost their value discarded in the street, others are used to make handicrafts or as paper for paintings. Many Venezuelans experience confusion between monetary cones, their value and validity, as it is not easy to follow the pace of these rapid changes.
Meanwhile, the implementation of the dollar as a method of payment is very common nowadays, after the population started to ignore the regime’s prohibitions of the use of the dollar a couple of years ago. But it is still not an easy solution.
Not all citizens have access to international digital platforms to save money, some pages are blocked inside Venezuela and there are internet connection problems that prevent, in many cases, a fast and efficient transaction.
Since the regime abandoned its own dollar restriction measures, some national banking institutions are starting to provide savings services in dollars, but few Venezuelans trust them. How to do it when some years ago, Chavez expropriated and nationalized some banks? In the process, many people lost money.
The use of the dollar in cash is another issue. There seem to be more dollars than bolivars in cash inside the country, but low denomination currency is scarce so, at the time of purchase, the whole amount or a large part of it must be spent.
In Venezuela, the question is not whether this measure will help to improve, the question is how fast the zeros will be recovered. In an economy where there is inflation not only in bolivars, but also in dollars, it is naive to think that a snap of the fingers to eliminate zeros can fix anything.
Image credit: Jorge Andrés Paparoni Bruzual