What Will a New Currency Mean in Venezuela?

Venezuelan president Nicolas Maduro and his new currency the Soverign Bolivar to being circulation in June.

– Venezuelan President Nicolas Maduro announced on Thursday a monetary reconversion based on a new currency, the Sovereign Bolívar, which he said will come into force on June 4th. The currency will have three zeros less than the devaluated strong bolivar, currently in force, reported dpa news.

It will be the second monetary reform in ten years after the one promoted in 2008 by the late President Hugo Chávez, who replaced the Bolivar for the Bolívar Fuerte, also removing three zeros.

What are the causes of the reform?

The main cause is hyperinflation. The very basic products for a family in Venezuela currently amount to about ten million bolivars, and any product exceeds hundreds of thousands of bolivars. Maduro interpreted what happens in the streets: in everyday purchases the citizens got used to taking “by word” three zeros from the bolívar fuerte. Thus, the minimum fare on a bus goes from 2,000 bolivars to what the driver asks, which are “two”. If you buy a coffee, which can cost 20,000 bolivars, the cashier simply asks for “twenty,” even if the buyer has to deliver two 10,000 notes. The Government maintains that the conversion will simplify everyday transactions and improve the handling of cash.

What will the denominations of the new currency be?

The current bills (1,000, 2,000, 5,000, 10,000, 20,000, 50,000 and 100,000 bolivars) will be replaced by one, two, five, ten, 20, 50 and 100, 200 and 500 sovereign bolivars. As of the conversion, one dollar will be equivalent to 40 sovereign bolivars in the official market and 230 on the black market. Until June 3, people can deposit their old notes which will be replaced by the new ones.

What do the critics say?

Some analysts affirm that the reconversion will only serve to simplify the daily transactions, but that it will not serve to stop the inflation, fueled by the monetary issue and the devaluation.

Currently the dollar on the black market is trading at 230,000 bolivars, twice as much as a year ago. The economist and deputy Jose Guerra warned that two months is not enough time to start this type of conversion. In addition, he said that without an economic adjustment plan the measure will fail. It is still unknown if the reform can alleviate the problem of the shortage of cash.

What’s currently happening with the cash money?

Given the shortage of paper money, banks set a withdrawal limit of 10,000 bolivars per day (around 4.5 cents of a US dollar) in ATMs. Retirees are the only sector that obtains the most cash after long lines at the banks, since by law banks are obliged to pay in cash the entire monthly amount, about 380,000 bolivars, without counting bonuses. The currency shortage has caused speculation: some buy a bill of 100,000 bolivars and pay 150,000 or 200,000 by bank transfer.

What will happen to the price of fuel?

Many wonder how the new currency will impact the conversion in the price of gasoline, the cheapest in the world. Currently a liter of 91 octane is sold at 1 bolivar fuerte. After the conversion, its price will be 0.001 sovereign bolivars.

The government of Nicolas Maduro has wanted to increase the ridiculously low price of gasoline and the massive losses incurred in its production, however it has yet to do so despite the economic crisis, as it fears a violent reaction from the population.

4 thoughts on “What Will a New Currency Mean in Venezuela?

  • You have no idea what you’re talking about. With respect. This is not the everyday tiny ups and downs of a relatively stable economy, it’s unwaveringly arrogant price controls, mis-management, corruption, shortages of basic supplies, and an economic model that makes a black market for currency conversion necessary for people’s survival. I live in Venezuela.

  • I don’t disagree but all of those economic woes manifest a fear of rising prices. This provokes hoarding. Retailers respond by ….raising prices. Fear, or better said, anxiety is the root cause of inflation.

  • Inflation woes are not born of fear, they are born by the disastrous monetary policy, interest rates and the out-of-control printing of money without backing of goods and services.

  • Printing new money that simply drops zeros will do nothing to resolve the underlying problem. Inflation woes are born of fear. Until Venezuelans feel more confident about their economy, inflation fears will continue.

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