A lead or a sign of failure?

It is nothing new that Venezuela’s government and opposition are using every excuse to confront and push to unsuspected extremes any issue that either puts on the table.

And now, it is time to talk about monetary reconversion: the executive is selling it as the panacea for economic recovery, after having withdrawn six zeros from the devalued bolivar, victim of hyperinflation and increasing dollarization. For the anti-chavismo, it is yet another failure.

Reality is stubborn and shows that neither is real. Here, some keys to the usefulness (or not) of monetary reconversion in Venezuela, which already has two similar experiences, two precedents which give and repeat reasons.

1- The previous ones

This reconversion, which will take effect on October 1, is the third to date in the 21st century and, therefore, under the governments of the so-called “Bolivarian revolution”.

The first, which removed three zeros from the currency, was announced in 2007 and applied from January 1, 2008.

Without the urgency caused by the hyperinflation that Venezuela has been experiencing since November 2017, the process was planned and started after a long civic education so that Venezuelans could familiarize themselves with the then newborn bolivar fuerte.

In 2018, with Nicolás Maduro as president and with the country embroiled in a hyperinflation loop, the second reconversion was launched which, at first, would eliminate three more zeros, but which ultimately erased five. The currency was renamed Sovereign Bolivar.

2- First effects

The first of the conversions aimed to give “greater efficiency to the country’s payment system”, as well as to “consolidate confidence in the national currency”, according to the then president Hugo Chavez, objectives which did not have were achieved, since “the fort” lasted only a decade in the pockets of Venezuelans.

In 2018, Nicolás Maduro announced that the sovereign bolivar would represent “a new monetary system to stabilize and change the monetary and financial life of the country in a radical way”.

These objectives were even further removed from reality: hyperinflation has not stopped, the country’s purchasing power has been wiped out and the ruler saw how, under his empire, an exodus of Venezuelans began in search of a better future outside their country.

3- Digitization or an excuse?

The digitization of the bolivar, which the government now presents as a novelty, has been a reality for several years. The shortage of paper money, a consequence of hyperinflation, has led to the forced use of platforms like “mobile payment” or to make instant transfers to pay in local currency from a packet of bread to service receipts.

While it is not yet known what news the high-profile digitization will bring, it will not, at least in principle, be a more widespread fact than it already is today – than money. liquid is hardly used because of its low value-, since the announcement of the launch of the coin of a bolivar and banknotes of 5, 10, 20, 50 and 100 augurs more physical money and less digital payments.

In addition, the new bolivar, although its creation is supported by the BCV in the digitization of the economy, faces the bad internet connection and constant power cuts, which reduce the possibilities of carrying out digital transactions, a problem already known which makes it impossible, on many occasions, even to use the terminals for payment with a common card.

4- Dollarization

Despite the fact that the government is promoting its new strategy as a way to consolidate the national currency, it has not specified how it will ensure that it maintains its original value, which can only be achieved by abandoning the scenario. current hyperinflation for the bolivar to regain the strength it lost years ago.

Otherwise, the one that will be consolidated – even more – will be the American currency that President Nicolás Maduro has dubbed the “criminal dollar”, and before which, inevitably, he ended up surrendering as a lifeline for the country’s economy. As of today, around 90% of business transactions are carried out in dollars.

And although the future remains to be seen, the digital bolivar will have to take its first steps by cohabiting with the greenback which, barring the economic miracle of the third monetary reconversion, is here to stay.

5- The long-awaited end of hyperinflation

For the new currency to be successful, hyperinflation, which has been fading for several months, must stop.

This will only be possible, according to economists, if the serious budget mismatch that the government solves with monetary issuance.

One of the keys to this will be for the state to increase its income and therefore stop financing itself from the central bank, in addition to stopping injecting inorganic money into the economy.

Source: EFE

CB