October 22, 2021

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Venezuela cut six zeros from its banknotes

Venezuela cut six zeros from its banknotes

Everything is expressed in the national currency divided by millions.

Oct 1, 2021 at 8:59 PM TASR

Caracas. The official exchange rate of the Venezuelan bolivar fell from 4.18 million per US dollar to just 4.18 as the country struggled with hyperinflation on Friday to simplify transactions by cutting six zeros from its currency.

This is the third banknote reform in 13 years, with 14 zeros cut since 2008.

Hyperinflácia

“Everything expressed in the national currency will be divided in millions,” the central bank said.

According to the central bank, the once-rich oil producer has been struggling with stagnation and hyperinflation for eight years. Consumer price growth reached nearly 3000% in 2020 and more than 9500% in the previous year. Consulting firm Ecoanalítica expects inflation to reach around 1,600% in 2021. In May, the government tripled the monthly minimum wage, but even the new amount was not enough shopping kilogram of meat.

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According to the latest study, three out of four Venezuelans live in extreme poverty, with the economic crisis exacerbated by US sanctions and a new pandemic. Corona Virus. In previous years, millions of people left the country to try their luck elsewhere.

lose value

Since the bolivar lost almost all of its value, 7 million bolivars were needed to pay for one loaf of bread before Friday’s change, and the banknotes themselves are very hard to come by.

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The government will issue new banknotes in denominations of five, 10, 20, 50 and 100 bolivars, as well as disposable coins, but it has said it wants the economy to go fully digital. Analysts see this as a way to avoid putting pressure on funds that will continue to fall and ultimately require further adjustments.

The largest banknote that ends in a face value is a million, which is barely 0.25 US dollars (0.21 euros) and not even enough to buy sweets. It will remain in circulation in parallel with the new banknotes for several months.

“The bolivar will not have more value, it will not be less valuable, it is just a currency measure that we apply by removing six zeros to facilitate transactions,” Delcy Rodriguez, vice president of the central bank, said this week.

According to Luis Artur Barceñas of Ecoanalítica, the move reflects “the lack of capacity of economic actors in Venezuela to control hyperinflation”, a phenomenon that has “severe impoverishment of the population”. As a result, people receive salaries in the millions of bolivars that are actually worthless.

In Venezuela, the minimum wage in public services is $2.5 per month and the average salary is around $50, while a basic grocery basket for a family of five costs about $220.

Most Bolivarian payments are made by debit card or bank transfer, but according to private sector estimates, up to 70% of transactions are made in US dollars. Prices on many store shelves are in US currency to make things easier.

(1 EUR = 1,1600 USD)

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