Nicolas Maduro speaks in 2018 in Caracas.
Photographer: Carlos Becerra / Bloomberg
Photographer: Carlos Becerra / Bloomberg
The Venezuelan government plans to move to a fully digital economy as hyperinflation virtually eliminates worthless bolivar notes and expands dollarization through the local financial system.
The US dollar has acted as an escape valve for Venezuela amid US sanctions and the collapse of oil revenues, President Nicolas Maduro said in a television interview with Telesur on Friday. He said 18.6% of all commercial transactions are in dollars, while 77.3% are carried out in bolivars with debit cards. Only 3.4% are paid with bolivar notes.
“They are waging a war against our physical currency. We are moving towards a more profound digital economy this year, in expansion. “I set the goal of an economy that is 100% digital,” Maduro said, adding that physical money would eventually disappear.
This is the latest ambitious currency plan of Venezuela’s president, with no guarantee of success. In 2017, with the bolivar in free fall, Maduro promised the nation a cryptocurrency called the Petro, backed by reserves of oil, gas, gold and diamonds. The Petro was launched in 2018; the US calls it a cheat.
Venezuela’s currency lost 99% of its value during three years of hyperinflation, forcing the country to issue notes with a higher denomination, which in turn became useless in record time. According to Bloomberg News, inflation has risen by 5,790% over the past 12 months Cafe with Leche Index.
The largest note now in circulation, 50,000 bolivars, is worth about $ 0.04. The government has plans to 100,000 bolivar account, which is currently worth less than $ 0.10.
Read more: Venezuela’s Cafe Con Leche Index
After former subsidized fuel prices were raised in June, cash is now only used to travel by public transport, and the Caracas metro regularly stops to pay passengers due to cash shortages.
Since the end of 2019, local banks have slowly started offering accounts and financial products in US dollars, but this remains limited because no clearance system exists to enable digital transactions in US dollars.
Some banks have already had technical meetings with the central bank of Venezuela in an attempt to solve the problem amid great skepticism and caution due to US sanctions. But Maduro has promised to create ‘payment formats’ that use transactions with savings and checking accounts in US dollars.
A Central Bank press officer from Venezuela did not immediately respond to a request for comment.
Despite the promise to expand the use of the US dollar in the economy, Maduro said that a formal dollarization will not take place. “Venezuela has its currency and we are going to defend it,” he said.
(Background updates on previous currency reform from the fourth paragraph.)