Venezuela’s Central Bank will simultaneously devalue its currency by deducting six zeros from it in order to combat monetary inflation.
Venezuela’s currency will be undergoing a transformation in more ways than one as the government attempts to contain inflation while also establishing monetary sovereignty.
The Central Bank of Venezuela announced today that the digital bolivar, which was first announced in February, will go into circulation on October 1, according to a press release.
Information about the bank was first shared on social media accounts, and later confirmed on the website of the People’s Ministry of Economy and Finance, according to the bank.
In contrast to decentralized cryptoassets such as Bitcoin, the digital bolivar is an example of a central bank digital currency (CBDC), which is a digital representation of a traditional fiat currency issued by a country’s central bank rather than by the government.
COMUNICADO OFICIAL🔵| A partir del 1° de octubre entra en vigencia el Bolívar Digital
BCV🇻🇪 https://t.co/635uhVu1sA pic.twitter.com/aErAOUvwHL— Banco Central de Venezuela (@BCV_ORG_VE) August 5, 2021
An accompanying monetary redenomination will remove six zeros from the currency in order to accommodate the CBDC. Bloomberg’s Cafe con Leche Index, for example, estimates the cost of a single cup of coffee to be 7,662,898 bolivars, or slightly less than $2 in today’s currency.
After a 289 percent increase in May, the minimum wage in Venezuela is now 7 million Bolivars, which is slightly higher than the United States’ minimum wage.
In the last 15 years, there have been three redenominations, bringing the total number of redenominations to four. Three zeros were erased from the ledger in 2007 by deceased former President Hugo Chavez.
He was succeeded by Nicolás Maduro, who took advantage of the creation of Venezuela’s own cryptocurrency, the Petro, to reduce the number of zeros in the country’s currency by five.
Although this redenomination, which is being accompanied by the announcement of a digital currency, is unlikely to have much of an impact, Also in the 2000s, Zimbabwe redenominated its currency three times in order to combat hyperinflation before resorting to using foreign currencies to settle payments.
Venezuela’s monetary policies have been geared toward breaking the country out of its cycle of hyperinflation, and the establishment of the new CBDC may aid in that endeavor even more effectively.
A new Financial Messaging Exchange System, a free and sovereign system designed and developed in Venezuela by Venezuelans, is also being developed, according to the bank, with the goal of promoting the independence of Venezuelan banking operations from foreign systems.
To that end, the Petro cryptocurrency, which was launched in February 2018 as the country’s financial system began to crumble under the weight of economic sanctions led by the United States, was intended to provide a means of circumventing the global financial system. It is not mentioned at all in today’s press release.
Only the most basic information is currently available about how the CBDC will function; however, it will circulate alongside the physical bolivar. Notes in the new denomination have already begun to be printed and distributed.
Despite this, the exchange rate remains volatile and is dictated by the free international exchange market. Minimum wage in the country will remain at its current level.
A number of other countries, including China and the Bahamas, are currently testing CBDCs.