Nicolas Maduro speaks in Caracas in 2018.
Photographer: Carlos Becerra / Bloomberg
Photographer: Carlos Becerra / Bloomberg
The Venezuelan government intends to move to a fully digital economy, as hyperinflation has virtually wiped out worthless bolivar notes, and dollarization is spreading through the local financial system.
The US dollar has functioned as an escape valve for Venezuela amid US sanctions and the collapse of oil revenues, President Nicolas Maduro said in a televised interview with Telesur on Friday. He said 18.6% of all business transactions are in dollars, while 77.3% are made in debit card bolivars. Only 3.4% are paid with bolivar notes.
“They are at war with our physical currency. We are moving this year towards a deeper, expanding digital economy. We have set the goal of a 100% digital economy, “Maduro said, adding that the physical money will eventually disappear.
It is the most ambitious foreign exchange plan of the President of Venezuela, without any guarantee of success. In 2017, with the bolivar in free fall, Maduro promised that the nation would create a cryptocurrency called Petro, backed by reserves of oil, gas, gold and diamonds. Petro launched in 2018; The US called it a fraud.
Venezuela’s currency has lost 99% of its value during three years of hyperinflation, forcing the country to issue higher-priced notes, which in turn become useless in record time. Inflation has risen 5.790% in the last 12 months, according to Bloomberg News’s Milk coffee index.
The largest banknote now in circulation, 50,000 bolivars, is worth about $ 0.04. The government has delayed plans to issue a Bill 100,000 bolivars, which would currently have a value of less than $ 0.10.
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After previously subsidized fuel prices were raised in June, cash is now only used to travel on public transport, and the Caracas metro usually stops charging passengers due to a shortage of cash.
Since the end of 2019, local banks have slowly started offering accounts and financial products in US dollars, but they remain limited because there is no clearing system in place to allow digital transactions in US dollars.
Some banks have had technical meetings with the central bank of Venezuela in an attempt to resolve the issue amid skepticism and caution over US sanctions. But Maduro promised to create “payment formats” that would allow transactions using savings and checking accounts in US dollars.
A Central Bank of Venezuela press officer did not immediately respond to a request for comment.
Despite a promise to expand the use of the US dollar in the economy, Maduro said no formal dollarization would take place. “Venezuela has its currency and we will defend it,” he said.
(Updates with information on the previous foreign exchange reform from the fourth paragraph.)