With hyperinflation, Venezuela cuts six zeros from the currency and launches ‘Bolivar Digital’

Charlie Taylor

Venezuela's currency will have a new look, in more than one way, as the government simultaneously tries to tame inflation and institute monetary sovereignty. The Central Bank of Venezuela announced today that it will put into circulation the digital bolivar, announced for the first time in February, on October 1st. The information was first posted on the Central Bank accounts on social networks and later confirmed on the Ministry of Economy and Finance website. The digital bolivar is an example of central bank digital currency (CBDC) – a digital representation of a traditional fiat currency issued by a country's central bank, in contrast to decentralized cryptoactives such as Bitcoin. The CBDC will be accompanied by a currency redenomination that eliminates six zeros from the currency. For reference, Bloomberg's Cafe con Leche index sets the cost of a cup of coffee at 7,662,898 bolivars, a little less than $2. million bolivars after an adjustment of 289% in May. The change will bring the total number of redenominations over the past 15 years to three. The deceased former president Hugo Chávez wiped three zeros in 2007. His successor, Nicolás Maduro, used the creation of the country's own cryptocurrency, Petro, as an opportunity to cut five zeros in 2018. This redenomination, which is also accompanied by a digital currency ad, it probably won't have much effect. Zimbabwe also renamed its currency three times in the 2000s to combat hyperinflation before turning to foreign currencies for payments. Venezuela's monetary policies aim to break out of the hyperinflation cycle, and the introduction of the new CBDC can help reinforce that mission. According to the bank, it is also working on a “new Financial Message Exchange System, a free and sovereign system, made in Venezuela and by Venezuelans, promoting the independence of foreign systems for national banking operations”. That was also the goal of Petro, launched in February 2018, as the country's financial system withered under the weight of US-led economic sanctions; The PTR was created to be a way around the global financial system. Today's ad doesn't mention this. Little is known about the mechanics of the CBDC itself, but it will circulate along with the physical bolivar. The notes corresponding to the new denomination are already being issued. The exchange rate remains floating and determined by the free exchange market. The nation's minimum wage will remain the same.

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