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Updated on: Friday, October 01, 2021, 12:52 PM IST

Venezuela introduces new currency with 6 fewer zeros; third-time country's leaders lop off zeros

PTI
The new currency tops out at 100 bolivars, a little less than $25 — until inflation starts to eat away at that as well. | Wikipedia

The new currency tops out at 100 bolivars, a little less than $25 — until inflation starts to eat away at that as well. | Wikipedia

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A new currency with six fewer zeros debuts Friday in Venezuela, whose currency has been made nearly worthless by years of the world's worst inflation.

The highest denomination until now was a 1 million bolivar bill that was worth a little less than a quarter as of Thursday. The new currency tops out at 100 bolivars, a little less than $25 — until inflation starts to eat away at that as well.

The million-to-1 change for the bolivar is intended to ease both cash transactions and bookkeeping calculations in bolivars that now require juggling almost endless strings of zeros.

“The most important and fundamental reason is that the payment systems are already collapsed because the number of digits make the payment systems and doing the math practically unmanageable,” said Jose Guerra, an economics professor at the Central University of Venezuela.

“These debit card payment processing systems or an accounting system for companies... are not intended for hyperinflation, but for a normal economy.”

Under the old system, a two-liter bottle of soda pop could cost more than 8 million bolivars — and many of those bills were scarce, so a customer might have to pay with a thick wad of paper.

Banks allowed customers to withdraw a maximum of 20 million bolivars in cash per day, or sometimes less if the branch was running short.

So, consumers have come to rely on US dollars and digital payment methods, such as Zelle and PayPal, to make purchases. Nowadays, most transactions are made electronically, and Guerra said, more than 60% are made in US dollars.

When Venezuela's Central Bank announced the currency change last month, officials said payment systems will be modernized to expand digital use of the bolivar.

They also underscored that the elimination of six zeros doesn''t otherwise affect the value of the currency. The bolivar “will not be worth more or less; it is only to facilitate its use on a simpler monetary scale," according to a Central Bank statement.

This is the third time Venezuela's socialist leaders have lopped zeros off the currency. The bolivar lost three zeros in 2008 under the late President Hugo Chavez, while his successor, current President Nicolas Maduro, eliminated five zeros in 2018.

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Published on: Friday, October 01, 2021, 12:52 PM IST
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