Venezuela’s government is planning to move to a fully digital economy as hyperinflation has made worthless bolivar notes, and dollarization expands through the local financial system.
The U.S. dollar has operated as an escape valve for Venezuela amid U.S. sanctions and collapsing oil revenues, President Nicolas Maduro said in a televised interview on Friday 1, 2021. He said 18.6 % of all commercial transactions are in dollars, while 77.3 % are carried out in bolivars with debit cards, and only 3.4% are paid with bolivar notes.
“We are moving this year to a more profound digital economy, in expansion. I’ve set the goal of an economy that’s 100% digital,” Maduro said, adding that physical money will disappear. It’s the latest currency plan from Venezuela’s president, with no guarantee of success. In 2018, with the bolivar in freefall, Maduro launched a cryptocurrency called the Petro, backed by reserves of oil, gas, gold and diamonds, to which the U.S. called it a scam.
Venezuela’s currency has lost 99 % of its value during three years of hyperinflation, forcing the country to issue higher denomination notes that were become useless in record time. Inflation soared 5,790 % in the last 12 months, according to Bloomberg News’s Cafe con Leche Index. The largest note now in circulation, 50,000 bolivars, is worth about US$ 0.04.
After formerly subsidized fuel prices were increased in June 2020, cash is now only used to ride public transportation, and the Caracas subway routinely stops charging passengers due to cash shortages.
Local banks have slowly started to offer accounts and financial products in U.S. dollars, but those remain limited as there’s no clearing system in place to allow for digital transactions in U.S. dollars. Maduro vowed to create “payment formats” allowing transactions using savings and checking accounts in U.S. dollars.
Despite promising to expand the use of the U.S. dollar in the economy, Maduro said a formal dollarization wouldn’t happen. “Venezuela has its currency and we are going to defend it,” he said.
ORIGEN AUTORAL: Nicolle Yapur