President Nicolas Maduro’s administration in Venezuela has undertaken the largest currency devaluation ever recorded in recent times, cutting value of the Bolivar by some 96 percent in an attempt to arrest the hyperinflation that has helped to bring the country to its economic knees.
The International Monetary Fund has estimated that inflation in Venezuela may hit an astounding one million percent, higher than the inflation rate in Zimbabwe under the former Robert Mugabe administration.
The Central Bank of Venezuela set the rate at 68.65 of the new “sovereign bolivars” to the euro, equivalent to around 60 bolivars per dollar.
The previous rate was equivalent to some 2.48 sovereign bolivars to the dollar. Expressed in the previous “strong bolivar” currency in effect until Monday, it amounts to a hike from 248,210 to 6,000,000 to the dollar.
In another drastic move, the Maduro administration has also decided to raise the country’s minimum wage by some 3,000 percent, a move that he hopes to bring citizens back home, add value to consumer savings and also bolster confidence in consumer spending.
During the political and economic collapse within Venezuela that prompted these latest adjustments by Maduro, residents have fled the country to neighbouring Columbia, Brazil and as far down south as Argentina and have also sought refuge in Caribbean islands from Anguilla to Trinidad and Tobago.
In a Facebook broadcast announcing the devaluation, Maduro also noted that it was his solemn promise and intention to revive the economy, and as part of that he also planned to raise taxes, increase petrol prices for some drivers, in addition to currency devaluation and introducing the rebranded currency – the sovereign bolívar – which will have five fewer zeros than its inflation-stricken predecessor, the bolívar.
Luis Vicente Leon, president of the Caracas-based pollster Datanalisis, said Venezuela’s latest package of economic measures is likely to cause major problems for domestic businesses.
“The transition to apply the concrete elements of the proposal: exponential increase in salaries, massive requests for advancement of benefits and increase and change of frequency of tax payments puts companies in a situation of catastrophic cash flow,” Leon said in a tweet posted on Friday.
In several other tweets, Leon went on to further assert that this move will create market distortion, raise the likelihood of more black market activity and that moves like this are not in keeping with trying to establish and maintain a respected exchange rate.
The new sovereign bolivar is also expected to be pegged to the newly unveiled Venezuela cryptocurrency, the Petro, unveiled early this year to widespread criticism.
Further in Maduro’s address, he also made clear that he wishes everything in Venezuela to be tied to the Petro and that: “They’ve dollarized our prices. I am petrolizing salaries and petrolizing prices … We are going to convert the petro into the reference that pegs the entire economy’s movements.”
Skeptics of Venezuela’s Petro have gone on record stating that the cryptocurrency is risky, not needed to be backed by oil-revenues, with Venezuela being a large exporter of oil and petroleum products, having the world’s largest oil reserves. The Petro leaves itself open for more fraudulent activity than most other cryptocurrencies in that it is backed by a regime that is already under heavy international sanctions and thus the Petro may be used to back illicit and illegal transactions.
With Venezuela also falling under the crippling pressure of international sanctions, which has affected its largest export, oil, whether or not these moves will help or are just another desperate ploy remains to be seen
