Venezuela scraps six digits from banknotes

Venezuela is removing six zeros from its banknotes to make payments easier. This change will make it easier for merchants to process payments, as the large number of zeros regularly caused problems. By crossing out a number of zeros, it is easier to calculate amounts and withdraw money.

From August, the central bank will introduce new banknotes, which should replace the old notes with a lot of zeros. And that was desperately needed, because the last revision of the money took place in 2018. At that time, the central bank introduced a 1 million note, the Venezuelan bolivar, to settle large amounts. Due to hyperinflation, this note is only worth 32 cents.

Hyperinflation in Venezuela

Currency depreciation has been a problem in Venezuela for some time, but in recent years it has gone very fast. It started with the fall in the price of oil in 2014, which meant that an important source of income was lost. As a result, there was no longer enough hard currency to pay for the import of goods. The central bank therefore started printing money at the behest of the government, which solved the problem only got bigger.

On top of that, there were U.S. sanctions, which hampered the payment system in dollars. For many companies, it became more difficult to do business with Venezuela, further isolating the Latin American country economically. Also, the Bank of England decided to bail out Venezuela's gold not to be released, leaving the country with almost no reserves at its disposal.

Since 2008, the government - first led by Hugo Chavez, then under Nicolas Maduro - has removed a total of eight zeros from the banknotes. As a result, the bolivar, the country's currency, has become virtually unusable. Therefore, people exchange the money for better currencies, such as the dollar and the euro, as soon as possible. Gold and cryptocurrencies now play a role as a safe haven for savers.

New banknotes

To make payments more efficient, the central bank will launch a series of banknotes from 2 to 100 new bolivar in August. So, in fact, these notes represent a value of 2 million to 100 million current bolivar. It is therefore a logical continuation of the current series of banknotes, which ends with the note of one million 'old' bolivar.

In recent months, hyperinflation in Venezuela seems to be slowing down somewhat. Inflation is now 2,339% on an annual basis, compared to 2019 Cafe con Leche index from Bloomberg was still more than 300,000%. This is an alternative definition for inflation, based on the price of a cup of coffee with milk on a terrace.

Euros and dollars

These inflation figures do not make much difference, because in both cases the shelf life of the money is very short. At best, a few months, at worst, just a few weeks. Therefore, in fact, the real economy has already switched to foreign money, such as the euro and the dollar. On the black market, people exchange the worthless bolivar for this relatively strong currency.

The central bank even started to use euros in 2019. procure to banks, after Russia for millions in euro banknotes to the country. The government decided to bring more euros into the economy, as this currency is less controversial than the US dollar. Through the U.S. sanctions policy, Venezuela is giving the preference to the single currency.

This contribution comes from Geotrendlines