Currency devastated by hyperinflation, Chavismo removes six zeros from bolivar

Take the annual budget of an oil country and save it in local currency without touching it. Wait 14 years and that money, then equivalent to $ 50 billion, will be worth 25 cents. Unlikely? It happened in Venezuela.

This story is important because this Friday a currency reconversion takes effect in Venezuela, which will remove zeros from its destroyed currency, the bolivar, for the third time since 2008. This time, it will be six zeros eliminated, reaching 14 in total. It is one of the most marked conversions recorded in the world since World War II.

A million bolivars, about 25 cents per dollar not enough to buy a piece of bread, it will be a bolivar … and this bolivar in turn represents 100 billion bolivars in 2007, reflecting an incredible erosion: the national budget for this year has reached 115 trillion bolivars, or more than 50,000 million dollars.

Wages, along the way, dissolved. “We charge less than three dollars a fortnight,” Marelys Guerrero, a 43-year-old teacher who earns millions of dollars worth nothing, told AFP.

The regime’s measure, which does not involve other types of currency or exchange rate reforms, is aimed solely at simplifying accounts and records, according to the Central Bank of Venezuela. It is an aesthetic approach.

The biggest novelty, in any case, is the official goal that the new currency has greater circulation through electronic payment systems than printed paper, which would solve the problem of scarcity and make transfers more secure and secure. cheaper. . But Venezuela, in addition to other problems, is severely underbanked.

De facto, people have reconverted and speak of thousands to designate millions. The outgoing monetary currency, capped at 1 million banknotes, will coexist for a few months with the new one and its denominations: a coin of a bolivar and banknotes of 5, 10, 20, 50 and 100 bolivars.

Marelys, the teacher, is afraid to round up. If there is something left at 4.5 after the conversion, “it won’t cost 4.5, but 5,” said the woman in a store in Chacaito, a commercial area of ​​Caracas.

As Venezuelans try to protect themselves from the highest inflation in the world, projected at 1,600% for this year by the private company Ecoanalítica, the dollar has replaced the bolivar and more than two-thirds of transactions in Venezuela are carried out in this motto. Digitization is in advance a surrender, says Luis Arturo Bárcenas of Ecoanalítica. “There will surely not be sufficient cash (…). You recognize that you do not have the capacity to issue all the bolivar banknotes you need, ”explains this economist.

While Marelys fears further inflationary bursts, working with six zero zeros comforts the accountant Rodrigo Bermúdez. “It’s a relief for us,” he says and shows AFP an invoice in which he has to divide a collection into four parts to be able to include it in the accounting systems used in his business. They are infinite numbers. Illegible. “The number of digits made everything very cumbersome,” he adds.

Although Maduro has restricted government spending and limited credit, which has all but disappeared, prices continue to rise, even in dollars. “If one expects inflation to behave as in recent months, it is very likely that in three or four years the government will have to reconvert again,” warns Bárcenas. This removal of zeros from the currency comes only three years after the previous one, in 2018, which eliminated five zeros from the bolivar.

“I’ll buy you your dollar!” Shout young people with thick strips of bolivar banknotes at a bus stop. In the absence of cash, stops are virtual exchange houses. “We pay four million dollars for them. The ticket costs two million, ”says William Hernández, 56-year-old transporter.

The image became daily after the dollar was banned for 15 years by order of the late Hugo Chávez. This mechanism has been relaxed due to the collapse in revenues following the collapse of the oil industry and the sanctions against the country. The regime describes dollarization as “an escape valve.”

Take the annual budget of an oil country and save it in local currency without touching it. Wait 14 years and that money, then equivalent to $ 50 billion, will be worth 25 cents. Unlikely? It happened in Venezuela.

This story is important because this Friday a currency reconversion takes effect in Venezuela, which will remove zeros from its destroyed currency, the bolivar, for the third time since 2008. This time, it will be six zeros eliminated, reaching 14 in total. It is one of the most marked conversions recorded in the world since World War II.

A million bolivars, about 25 cents per dollar not enough to buy a piece of bread, that will make a bolivar … and this bolivar in turn represents 100 billion bolivars in 2007, a reflection of an incredible erosion: the national budget for this year has reached 115 trillion bolivars, or more than 50,000 million dollars.

Wages, along the way, dissolved. “We charge less than three dollars a fortnight,” Marelys Guerrero, a 43-year-old teacher who earns millions of dollars worth nothing, told AFP.

The regime measure, which does not involve any other type of currency or exchange reform, pursues the sole objective of simplifying accounts and records, according to the Central Bank of Venezuela. It is an aesthetic approach.

The biggest novelty, in any case, lies in the official goal that the new currency has greater circulation through electronic payment systems than printed paper, which would solve the problem of scarcity and make transfers more secure and secure. cheaper. . But Venezuela, in addition to other problems, is severely underbanked.

De facto, people have reconverted and speak of thousands to designate millions. The outgoing monetary currency, capped at 1 million banknotes, will coexist for a few months with the new one and its denominations: a coin of one bolivar and banknotes of 5, 10, 20, 50 and 100 bolivars.

Marelys, the teacher, is afraid to round up. If there is something left at 4.5 after the conversion, “it won’t cost 4.5, but 5,” said the woman in a store in Chacaito, a commercial area of ​​Caracas.

As Venezuelans try to protect themselves from the highest inflation in the world, projected at 1,600% for this year by the private company Ecoanalítica, the dollar has replaced the bolivar and more than two-thirds of transactions in Venezuela are carried out in this motto.

Digitization is in advance a surrender, says Luis Arturo Bárcenas of Ecoanalítica. “There will surely not be sufficient cash (…). You recognize that you do not have the capacity to issue all the bolivar banknotes you need, ”explains this economist.

While Marelys fears further inflationary bursts, working with six zero zeros comforts the accountant Rodrigo Bermúdez. “It’s a relief for us,” he says and shows AFP an invoice in which he has to divide a collection into four parts to be able to include it in the accounting systems used in his business. They are infinite numbers. Illegible. “The number of digits made everything very cumbersome,” he adds.

Although Maduro has curtailed government spending and limited credit, which has all but disappeared, prices continue to rise, even in dollars. “If one expects inflation to behave as in recent months, it is very likely that in three or four years the government will have to reconvert again,” warns Bárcenas. This removal of zeros from the currency comes only three years after the previous one, in 2018, which eliminated five zeros from the bolivar.

“I’ll buy you your dollar!” Shout young people with thick strips of bolivar banknotes at a bus stop. In the absence of cash, the stops are virtual exchange houses. “We pay four million dollars for them. The ticket costs two million, ”says William Hernández, 56-year-old transporter.

The image became daily after the dollar was banned for 15 years by order of the late Hugo Chávez. This mechanism has been relaxed due to the collapse in revenues following the collapse of the oil industry and the sanctions against the country. The regime describes dollarization as “an escape valve.”