Currency reconversion in Venezuela: a bolivar from tomorrow, 100 billion yesterday

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. Improbable? Happened in Venezuela.

On Friday a monetary reconversion in Venezuela, which will remove zeros from its destroyed currency, the bolivar, for the third time since 2008. This time there will be six zeros removed, reaching 14 in total.

One million bolivars, about 25 cents on the dollar not enough to buy a loaf of bread, will be one bolivar … and that bolivar in turn represents 100 billion bolivars in 2007, a reflection of an incredible erosion: the national budget that year reached 115 trillion bolivars, which was more than 50,000 million dollars.

Diluted salaries

Wages, along the way, dissolved. “We charge, biweekly, less than three dollars”Marelys Guerrero, a 43-year-old teacher who charges millions that are worth nothing, tells AFP.

De facto, ordinary people made a conversion and it is normal to speak of thousands to refer to millions.

The outgoing monetary cone, which is capped at the 1 million bill, will coexist for a few months with the new one and its denominations: a one bolivar coin and 5, 10, 20, 50 and 100 bolivar bills.

Marelys is afraid of rounding. If something remains at 4.5 after the conversion, “It will not cost 4.5, but 5”, says this woman in a store in Chacaíto, a commercial area of ​​Caracas.

With Venezuelans trying to protect themselves from the highest inflation in the world, projected at 1,600% for this year by the private firm Ecoanalítica, the dollar has displaced the bolivar and more than two thirds of the transactions in Venezuela They are made in that currency, according to private estimates.

The situation led to both a chronic shortage of cash and relegated the bolivar to transactions with debit cards and bank transfers. The little ‘cash’ circulating is used basically in public transport.

President Nicolas Maduro He talks about “digital bolivar”, asking for the total “digitization” of payments.

That idea is in advance a surrender, affirms Luis Arturo Bárcenas, from Ecoanalítica. “There is surely not going to be a sufficient cash endowment (…). You are recognizing that you do not have the capacity to issue all the tickets in bolivars that you require “explains this economist.

Banking systems will be paralyzed Thursday night for technical adjustments.

Endless zeros

While Marelys fears new inflationary jumps, working with six less zeros comforts the accountant Rodrigo Bermúdez.

“It is a relief for us”, says Bermúdez, who shows AFP an invoice in which he must divide a collection into four parts to be able to include it in the accounting systems used in his company. They are endless numbers. Illegible.

“The number of digits was making everything very cumbersome,” adds.

Reconversions were common in Latin America, especially in times of hyperinflation in countries like Argentina, Brazil or Peru in the 1980s and 1990s. Argentina even created another currency, the austral, which later disappeared to return to the peso.

Although Maduro restricted public spending and limited credit, which has practically disappeared, prices continue to rise, even in dollars.

“If one expects inflation to behave the same as in recent months, it is very likely that in three or four years the government will have to reconvert again”, warns Bárcenas.

This reconversion occurs only three years after the previous one, in 2018, which eliminated five zeros from the bolivar.

“I buy you your dollar”

“I’ll buy you your dollar!” shout young people with thick bands of bolivar bills at a bus stop heading to dormitory cities near Caracas.

In the absence of cash, buses and stops are mobile exchange houses.

“We pay four million dollars for them. The ticket costs two million ”, says William Hernández, 56-year-old transporter.

The image became everyday after the dollar was banned from the streets for 15 years by an exchange control established by the late Hugo Chávez in 2003. Although it still exists, this mechanism was later made more flexible due to the collapse of income as a result of the collapse of the Venezuelan oil industry and international sanctions against the country.

Maduro calls informal dollarization “a safety valve.”

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