Venezuela and the digital bolivar: keys to the “dummies” of the third currency conversion in a century

The venezuelans they will experience their third currency conversion so far this century on Friday. They will go to bed this Thursday with the sovereign bolivar in their pockets and, the next day, they will get up with the digital bolivar, after amputation of six zeros devoured by the hyperinflation that began in 2017.

With dizzying price increases, currently the bolivar is exchanged at 4,181,781 units for every dollar, and its highest denomination banknote – one million – has an almost non-existent purchasing power.

As if that were not enough, the accounting of many companies has become impossible with the innumerable zeros that must be included in the books, so a reconversion was essential for the daily life of Venezuelans, who have already become accustomed to using the dollar to almost all transactions.

These are some keys to this new conversion.

A DIGITAL BOLÍVAR THAT IS NOT DIGITAL

Do not let the name mislead: the digital bolivar is not a cryptocurrency, nor will it be used exclusively online. It will have one bolivar coins and bills of five, ten, twenty, fifty and one hundred.

In addition, for a period of time not yet confirmed, they will coexist with previous banknotes -with updated value-, to facilitate transactions. In other words, the bolivars, almost disappeared from the streets, may be used again in everyday purchases, but they will be worth a million times less than what it says on paper.

SIX ZEROES ARE GOING, THE VALUE REMAINS

The new conversion implies that for every million sovereign bolivars, a digital bolivar will be obtained or, in other words, six zeros will be erased from the amounts previously drawn. Therefore, the new banknote of one hundred digital bolivars represents one hundred million of the old sovereign bolivars.

What does not change is the rate to acquire other currencies. Therefore, and since 4,181,781 sovereign bolivars are currently exchanged for every dollar, 4.18 digitals will be purchased with each unit of the US currency as of tomorrow.

THE THIRD RECONVERSION IN A CENTURY

This conversion is not the first, but it is proof that recent years have been the most voracious with the purchasing power of Venezuelans. In 2007, the late President Hugo Chávez (1999-2013) made the first of this century by eliminating three zeros and lighting the bolívar fuerte, which replaced the original bolívar, without surnames.

In 2018, with Nicolás Maduro as president, the second was carried out, by eliminating five zeros from the currency. Since then, the perfect storm of devaluation and hyperinflation has ended up striking a fatal stab at the sovereign bolivar, which will undergo its formal burial this Friday, since the Venezuelans had buried it long ago.

THE DOLLAR, KING OF TRANSACTIONS

The accelerated loss of value of the national currency has pushed Venezuelans into the arms of any economic certainty. Over time, that guarantee has been offered by the dollar, initially demonized by the Government of Nicolás Maduro and later seen as a lifeline.

With the streets full of dollars, the businesses have invigorated their activity and allowed Venezuelans to have a minimum capacity to save. According to different estimates, about 70% of daily transactions are carried out in greenbacks, although many Venezuelans still do not have them at their fingertips.

AN ECONOMY DIGITALIZED TO BLOWS

The search for solutions has not only led Venezuelans to adopt foreign currencies (and sometimes cryptocurrencies) to have a certain guarantee of stability, but has also led them to experiment with digital forms of payment in the face of the depreciation of their currency.

Due to this, the dwindling purchases in sovereign bolivars required an unsustainable number of banknotes, so merchants had to look for alternatives such as almost exclusive payment by card or through digital platforms, two options weighed down by the lousy internet and the constant power outages.

As it is impossible to ignore these realities to plan any Venezuelan economic activity, the new bolivar – with or without the digital surname – must adapt to this situation, as well as to coexistence with the dollar and the diminished purchasing power of Venezuelans, while trying to navigate the swell of hyperinflation.

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