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Venezuela Debuts New Banknotes Amid Soaring Inflation

17 January 2017 16:26

Venezuela Debuts New Banknotes Amid Soaring Inflation

Venezuelans stood in long ATM lines Monday to take out new, larger-denominated bills that President Nicolas Maduro hopes will help stabilize the crisis-wracked economy.

Maduro last month said he was scrapping circulation of the most used bill, the 100-bolivar note, and replacing it with new bills ranging from 500 to 20,000 bolivars.

Residents in Caracas expressed shock at seeing bills with so many zeros — a sign of how worthless the bolivar has become amid triple-digit inflation and a collapse in foreign exchange reserves that has led to severe food shortages.

“I never thought I’d have such a big bill in my hands,” Milena Molina, a 35-year-old sales clerk, said as she inspected crisp, new 500-bolivar notes she had just withdrawn. “But with the inflation we’re suffering, the notes we had weren’t worth anything and you always had to go around with huge packages of bills.”

Monday’s rollout of the first batch of imported notes came weeks later than the government had originally promised. Maduro last month ordered the 100-bolivar note to be withdrawn from use well before the replacement bills were ready, leading to widespread chaos as Venezuelans rushed to spend the bills before they were taken out of circulation.

With cash running out, looting and protests were widespread and Maduro had to backtrack. On Sunday, he extended for the third time, until Feb. 20, the deadline for the 100-bolivar note to remain legal tender.

While the new denominations should make cash transactions easier the relief may be short-lived: the 20,000-bolivar note is worth less than $6 on the widely used black market, where Venezuelans turn when they can’t purchase dollars at the tightly controlled official rate. With inflation forecast by the International Monetary Fund to hit four digits this year, few economists expect the currency to rebound any time soon.

Seeking to combat the black market, the government on Monday inaugurated four currency exchange houses near the border with Colombia where Venezuelans will be able to purchase Colombian pesos at a favorable exchange rate of 4 pesos per bolivar. The bolivar currently is worth just a quarter of that amount at exchange houses over the border in Colombia.

Gov. Jose Vielma Mora of Tachira state said the Venezuelan central bank has at its disposal a large amount of pesos to meet what is expected to be strong demand for hard currency. All the same, purchases will be capped at between $200 and $300 and it was hard to find anyone Monday who had managed to buy pesos.

Opponents of Maduro said that in trying to set an exchange rate for pesos, authorities are paving the way for corruption, saying only certain individuals and companies close to the government will be able to purchase them at the official rate.

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