Friday’s launch of a new currency in Venezuela with six fewer zeros was a result of years of inflation that has rendered Venezuela’s currency almost worthless.
However, the new bills proved difficult to find in the capital. Consumers’ fear that prices would continue to climb was correct.
Lourdes Portelo (an office worker) said that she went to the supermarket today and that everything was marked in dollars. She was speaking in a shopping mall in Caracas’ east. “In the end I couldn’t purchase anything because I didn’t have enough cash.”
The highest denomination before the adjustment was a 1,000,000 bolivar bill, which was worth just a quarter of a dollar as of Thursday. The new currency is worth 100 bolivars (a little less that $25), until inflation takes over.
The bolivar’s million-to-1 exchange rate is designed to make it easier to cash transactions as well as bookkeeping calculations.
Jose Guerra, an economist at the Central University of Venezuela, stated that “the most fundamental and important reason for the collapse of the payment system is the sheer number of digits making it and doing the math virtually unmanageable.” These systems for processing debit cards and an accounting system for businesses… are not designed for hyperinflation. They are intended to support a normal economy.
A two-liter can of soda pop would have cost over 8 million bolivars under the old system. Many of those bills were rare, so customers might have to pay with thick paper.
Customers could withdraw up to 20 million bolivars per day from banks, but sometimes the bank would allow less if they were short.
Consumers have learned to rely on U.S. Dollars and digital payment methods such as PayPal and Zelle to make their purchases. Today, the majority of transactions are done electronically. Guerra stated that more than 60% of all transactions are made in U.S. Dollars.
Officials from Venezuela’s Central Bank said that payment systems would be upgraded to allow for greater digital use of the bolivar when it announced its currency change last month.
The currency’s value is not affected by the removal of six zeros, they said. According to a Central Bank statement, the bolivar “will never be worth more or lower; it is only meant to facilitate its use at a simpler scale monetary scale.”
However, currency exchange differences confirmed the fears of people that prices would rise if there was a currency change.
Friday’s dollar price on the black market increased by more than 500,000 bolivars to 5,200,000 in the old denomination and 5.2 bolivars for the new one. Although the official exchange rate was slightly higher at 4,181,781.84 bolivars (a slight increase), most businesses still use the black market dollar to set their prices.
It is the third time that Venezuela’s socialist leaders have taken zeros out of the currency. Under the former President Hugo Chavez in 2008, the bolivar lost three zeros, while Nicolas Maduro in 2018 eliminated five zeros.
Many Venezuelans believe that the new bills will not last after four years of hyperinflation. Although the central bank no longer publishes inflation statistics, the International Monetary Fund estimates that Venezuela will have a rate of 5,500% at the end 2021.
Elena Diaz, a 28 year-old cleaner standing outside a supermarket, said that she had only 3 million bolivars in her account. With that, you can’t buy one (piece) of bread.” “When they take out the six zeros and add those three bolivars to my account, I won’t be able buy anything.”
Maduro argued that the currency adjustment should not lead to price increases during Friday’s televised government event.
Maduro stated that there are “people who want to speculate with currency now, without rhyme nor reason.” “Today, there should be no price change… No one should raise (the price) of any product.”
Maduro’s two-year-old government abandoned its complicated and long-lasting efforts to limit transactions in dollars, allowing greenbacks to be used more quickly. These restrictions only fueled inflation.
Dollar bills are brought into Venezuela by a network that includes foreign bank account holders, who either charge commissions or travel home with cash.
Some stores had already begun to list three prices for each product in advance of the change. These were both in U.S. Dollars and new and old bolivars. Some stores had prices in dollars by Friday morning.
To adjust for the change, banks were required to suspend operations for several hours on Thursday and Friday. Many branches in Caracas did not open on Friday. However, according to the Superintendency for Institutions of The Banking Sector, electronic transactions were still available at most banks.
Guerra was a consultant to a former opposition presidential hopeful and said that Venezuelans are used to currency adjustments. More may come unless the government’s policies change.
“Basically, hyperinflation will occur again …,” Guerra stated. “The problem with hyperinflation in 2018 and 2019 was that the reconversion of 2018, when five zeros were removed, was lost in one year and a quarter.”