CARACAS, Venezuela – A new six-zero currency debuted on Friday in Venezuela, whose currency has become almost worthless from years of worst inflation in the world.
But the new bills were nowhere to be found in the capital, where consumer fears of another price spiral have proven correct.
“Today I went to the supermarket and everything was marked in dollars,” said Lourdes Pórtelo, an office worker, in a shopping center in eastern Caracas. “In the end I couldn’t buy anything, I didn’t have enough money.”
Before the adjustment, the highest denomination was a 1 million bolivar note, which was worth a little less than a quarter on Thursday. The new currency is 100 bolivars, a little less than 25 US dollars – until inflation begins to eat that too.
The million-to-1 change for the bolivar is designed to facilitate both cash transactions and accounting calculations in bolivars, which now require juggling with almost endless strings of zeros.
“The most important and fundamental reason is that the payment systems have already collapsed because the number of digits makes the payment systems and math practically unmanageable,” said Jose Guerra, economics professor at the Central University of Venezuela. “These debit card payment processing systems or a business accounting system … are not intended for hyperinflation, but for a normal economy.”
Under the old system, a two-liter bottle of lemonade could cost more than 8 million bolivars – and many of those bills were tight that a customer might have to pay with a thick wad of paper.
The banks allowed customers to withdraw a maximum of 20 million bolivars in cash per day, sometimes less if the branch was scarce.
For example, consumers rely on US dollars and digital payment methods such as cell and PayPal when shopping. 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 conversion last month, officials said payment systems will be modernized to expand the digital use of the bolivar.
They also stressed that the elimination of six zeros does not otherwise affect the value of the currency. The bolivar “will be worth nothing more or less; it just serves to make it easier to use on a simpler monetary scale, ”a central bank statement said.
But currency differences confirmed people’s fears that prices would rise if the currency changeover occurred.
The price of the dollar on the black market rose by more than 500,000 bolivars on Friday, reaching 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 companies use the black market dollar as a reference for pricing.
This is the third time Venezuela’s socialist leaders have scratched zeros from the currency. The bolivar lost three zeros in 2008 under the late President Hugo Chávez, while his successor, current President Nicolás Maduro, eliminated five zeros in 2018.
After more than four years of hyperinflation, many Venezuelans also believe that the new bills will be short-lived. The central bank no longer publishes inflation statistics, but the International Monetary Fund estimates that Venezuela’s interest rate will be 5,500% by the end of 2021.
“I only had 3 million bolivars in my account, so you won’t buy a single piece of bread with it,” said Elena Díaz, a 28-year-old cleaner who stands in front of a supermarket. “If you remove the six zeros, I can’t buy anything with these 3 bolivars either.”
The use of greenbacks accelerated after Maduro’s government two years ago abandoned its long and complicated efforts to restrict dollar transactions in favor of the local currency – restrictions that only fueled inflation.
Dollar bills flow into Venezuela through a network of overseas bank account holders demanding commissions or people traveling home with cash.
In the run-up to the switch, some stores had already started displaying three prices for each product in US dollars, as well as new and old bolivars. On Friday morning, some prices were only in dollars.
Banks should freeze operations for several hours between Thursday and Friday to make adjustments to the change. In Caracas, many branches did not open on Friday, but according to the regulator of the institutions of the banking sector, electronic transactions were active in most of the banks.
Guerra, who advised a former opposition presidential candidate, said Venezuelans are now used to currency adjustments – and more could be added if government policy doesn’t change.
“Basically this will happen again if there is no economic program to stop hyperinflation …” said Guerra. “The problem is that hyperinflation was so aggressive in 2018 and 2019 that the recalculation from 2018 (when five zeros were truncated) was lost in a year and a half.”