On December 11, President Nicolás Maduro made a surprise announcement that in 72 hours, the 100-bolívar note would no longer be considered as legal tender. The 100-bolivar note accounts for 77% on the cash currently in circulation in Venezuela and is the highest denomination currency note in the nation. Maduro has also temporarily closed the border between Colombia and Brazil on Thursday. Bayside Journal brings to you six things you need to know about Venezuela’s recent demonetisation.
President Maduro has said it was so “mafias” at the Colombian borders don’t hoard cash and worsen the nation’s food crisis. Experts believe the reason may be to thwart gangsters who buy cheap, price-controlled food in Venezuela and sell it in other countries for a massive profit.
2. How much is 100 bolivars worth?
It is worth about three American cents in the black market.
3. How has the public reacted?
Not very well. Mobs have looted banks and businesses. Shopkeepers are not accepting 100-bolivar notes. There have been protests and looting reported in six cities. People have been standing in line for hours all week to deposit their cash. Banks have run out of 50 and 20-bolivar notes and have not received any replacements. ATMs are still only dispensing 100-bolivar bills. Three deaths have been reported. The country is almost operating without cash.
4. What do critics have to say about this?
Critics have rubbished his reason to demonetise the notes saying that unscrupulous businessmen will have little reason to hoard the world’s fastest depreciating currency. “What the government is doing is completely irrational,” said a Caracas-based economist, Carlos Alvarez. Fighting the black market and hoarders “is the economic equivalent of trying to get rid of a mosquito on your forehead with a flamethrower,” said Venezuelan journalist, political scientist and blogger Francisco Toro.
5. What can people do with their now worthless notes?
Venezuelans have 10 days to exchange their notes at the central bank. They can also deposit their notes at the bank. The government has said that they will print new notes of higher denominations soon. The President has offered to temporarily cut sales tax for credit card transactions.
6. How will it affect the economy and the people?
About 40% of Venezuelans do not have bank accounts, says a Reuters report. The poor, working-class population who form a bulk of Maduro’s support are the worst affected. The public is already reeling from food shortages and having to carry wads of notes to buy a few groceries. The oil-rich nation is facing the devastating effects of a whopping 720% hyperinflation and the third straight year of recession. Economists had warned Maduro about such a risky move saying it will worsen the nation’s economic crisis. Economists have said this move will not improve product supply. Opposition Congressman Jose Guerra said that unless the ruling government cuts spending, removes price controls, and lowers the fiscal deficit, the economic situation will not improve.
The President has blamed the country’s hyperinflation and economic problems on the interference of the United States and the opposition; but experts say it is due to price controls by the government and excessive printing of money.