The new Venezuelan currency entered into force | Each unit of digital bolivar is equivalent to one million of the old currency

This Friday it came into effect in Venezuela a new monetary unit, the digital bolivar, equivalent to one million current sovereign bolivars, in a context of prolonged hyperinflation, a sustained shortage of local cash currency and a de facto dollarization of much of the economy.

The measure, which does not involve any other type of currency or exchange reform, continues for the sole purpose of simplifying accounts and records, as agreed by the Central Bank of Venezuela (BCV) and private economists.

The biggest novelty, in any case, consists of the official goal enough to the new currency has greater circulation thanks to electronic systems payments than printed paper, which would solve the problem of shortages and make transfers more secure and less expensive.

It will be the third currency sign change in the country’s history, after the change from the bolivar to the bolivar fuerte (equivalent to 1,000 of the previous ones, on January 1, 2008) and that from the bolivar fuerte to the sovereign bolivar (equal to 100,000 of the previous ones, on August 20, 2018).

It will also be the second change of monetary unit in the midst of the hyperinflationary process that began in November 2017 and is still in effect, with annual retail price increases of 2,587.7% that year, 1,698,488.2 in 2018, 7,374.4 in 2019, 3,717.0 in 2020 – according to official data – and projected at 5,500 for this year by the International Monetary Fund (IMF).

In this context, Venezuela has suffered from a shortage of local currency in cash for years -because working capital does not increase at the same rate as prices- and a good part of its economy has dollarized, especially since on August 29, 2019, the free convertibility of the bolivar was restored after 16 years of a severe exchange control regime.

The current banknote with the highest face value is the million sovereign bolivars – it has been in circulation since last March, with the 200,000 and the 500,000 – but it is insufficient when the monthly cost of the basic food basket in August was 953.9 million sovereign bolivars (then equivalent to 232.80 dollars), according to the latest monthly report from the Documentation and Analysis Center for Workers (Cenda), and a dollar was bought Thursday at 4.25 million sovereign bolivars, according to the specialized site Dolar Today.

The conversion “does not affect the value of the currency” because “the bolivar will be worth neither more nor less, only that to facilitate its use it takes a simpler monetary scale”, explained the BCV in a press release published on Monday..