CARACAS, Venezuela (WNN) — A new currency with six low zeros debuted on Friday in Venezuela, whose currency has been rendered virtually worthless by years of the world’s worst inflation.
But the new bills were nowhere to be found in the capital, where consumers’ apprehensions that prices would continue to rise proved true.
“Today, I went to the supermarket and everything was marked in dollars,” said Lourdes Portello, an office worker in a shopping center on the east side of Caracas. “In the end, I couldn’t buy anything, I didn’t have enough money.”
Before the adjustment, the highest denomination was 1 million bolívar bills, worth a little less than a quarter of Thursday. The new currency has topped 100 bolivars, a little less than $25 – until inflation begins to eat into that as well.
The million-to-1 change for Bolivar is intended to simplify both cash transactions and bookkeeping calculations in Bolivar, which now require juggling nearly endless strings of zeros.
“The most important and fundamental reason that the payment system has already collapsed is because the number of digits makes payment systems and mathematics practically unbearable,” said Jose Guerra, professor of economics at the Central University of Venezuela. “It’s a debit card payment processing system or an accounting system for companies…not for hyperinflation, but for a general economy.”
Under the old system, a two-liter bottle of soda pop could cost more than 8 million bolivars – and many of those bills were scarce, so the customer may have to pay with a thick sheet of paper.
Banks allowed customers to withdraw cash up to a maximum of 20 million bolivars per day, or sometimes less if they were at a branch.
Therefore, consumers are increasingly relying on the US dollar and digital payment methods, such as Zelle and PayPal, to make purchases. Nowadays, most transactions are done electronically, and Guerra said, more than 60% are done in US dollars.
When Venezuela’s central bank announced the currency change last month, officials said the payment system would be modernized to expand Bolivar’s digital use.
He also underlined that the elimination of six zeros does not otherwise affect the value of the currency. Bolivar “will not cost more or less; This is only to facilitate its use on a simpler monetary scale,” according to a statement from the Central Bank.
But currency exchange differences confirmed people’s fears that prices would go up when the currency changed.
The dollar on the black market rose by over 500,000 bolivars on Friday to 5,200,000 in the previous denomination and 5.2 bolivars per dollar in the new currency. The official exchange rate rose slightly to 4,181,781.84 bolivars, but most businesses use the black market dollar as a reference to set prices.
This is the third time that Venezuelan socialist leaders have deducted zero from the currency. Bolivar under the late President Hugo Chávez lost three zeros in 2008, while his successor, current President Nicolás Maduro, eliminated five zeros in 2018.
After more than four years of extreme inflation, many Venezuelans think the new bill will be too short-lived. The central bank no longer publishes inflation figures, but the International Monetary Fund estimates that Venezuela’s rate will be 5,500% at the end of 2021.
“I only had 3 million bolivars in my account, you don’t buy a single (a piece of bread) with it,” said Elena Diaz, a 28-year-old cleaning worker standing outside a supermarket. “When they will remove six zeros with those 3 bolivars So I won’t be able to buy anything.”
The use of the greenback intensified two years ago after Maduro’s government abandoned its long and complicated efforts to restrict transactions in dollars in favor of the local currency – sanctions that only fed inflation.
Dollar bills flow into Venezuela through a network of foreign bank account holders who charge commissions or through people traveling home with cash.
Before the change, some stores had already started displaying three prices for each product in US dollars as well as new and old bolivars. As of Friday morning, some were priced in dollars only.
Banks had to halt operations for several hours between Thursday and Friday to adjust for the change. Not many branches opened in Caracas on Friday, but electronic transactions were active in most banks, according to the superintendent of banking sector institutions.
Guerra, who was an adviser to a former opposition presidential candidate, said Venezuela is now used to currency adjustments – and more could come unless government policies change.
“Basically, if there is no economic program to stop hyperinflation, it will happen again…,” Guerra said. “The problem is that hyperinflation was so aggressive in 2018 and 2019 that the re-conversion of 2018 (when five zeros were cut) was lost in a year and a half.”
García Cano reported from Mexico City.