169 Interactions, 2 Today
In October, the Central Bank of Venezuela will launch a CBDC and an SMS-based exchange system to facilitate its use.
Due to raging inflation, the Central Bank of Venezuela will introduce a CBDC in October, along with a monetary redenomination that will remove six zeros from the currency.
The digital bolivar will enter the economy on October 1st. As part of the currency’s six zero readjustment, it will receive a new 1-bolivar coin, as well as banknotes ranging from 5 Bs. to 100 Bs.
The announcement was made by Venezuela’s Central Bank on August 6. To facilitate payments and transfers between its users, the CBDC will be accompanied by an SMS-based exchange system. The bank claimed that the CBDC and redenomination of the currency will have no effect on the bolivar’s value and that the changes are part of an effort to make the currency easier to use.
“The bolivar will not be worth any more or less; it is being reduced to a simpler monetary scale to facilitate its use,” the central bank said.
— Banco Central de Venezuela (@BCV_ORG_VE) August 5, 2021
Venezuelan President Nicolas Maduro first hinted at a digital bolivar in February, when he described the issuance of CBDC as one of the government’s efforts to modernise and rebuild the economy.
The president is no stranger to state-issued digital currencies, having introduced the oil-pegged Petro coin in 2018 as a means of evading US sanctions.
This the second time in three years that Venezuela has readjusted the bolivar after Maduro cut five zeros from the currency in 2018 as inflation hit its peak of 1.8 million percent. In 2020, the annual inflation rate was estimated to be around 2,300%.
Luis Vicente Leon, economist and president of Caracas-based Datanalisis, criticized the move, telling Bloomberg on Aug. 5 that another redenomination of the currency will do nothing to address the underlying issues that are debasing its value:
“Removing those zeros does not solve, at all, the reason that originated the problem. Without resolving the root of the issue, we will have the same problem in months.”
Venezuela has been dealing with a protracted economic crisis as a result of US sanctions and hyperinflation. In September 2020, Maduro proposed an anti-sanctions bill that sought to use cryptocurrency as a tool to circumvent the country’s sanctions.