This article could be summed up by simply saying: “It is neither economically nor humanly possible to live in Venezuela”. But if it were, it wouldn’t be an article; it would be one more tweet about the Bolivar Soberano among billions of other tweets that talk about how suffocating it is to try to survive in Venezuela. Here, however, we want it to be something more complex, like the situation Venezuelans are going through.
The Bolivar Soberano
President Nicolas Maduro announced on March 22nd, 2018, a new currency conversion by removing three zeros from the actual Bolivar, and a new group of coins and banknotes with a new name in circulation on June 4th, 2018. A product that costs Bs 600,000 will cost Bs S. 600. The minimum wage is Bs 2,555,500 and will be Bs S. 2,550.50. Analyzing the current constitution, the only way for the president to dictate such a legal decree is for it to be authorized by parliament, and it is not. This mandate must be related to the Emergency Economic Decree which hasn’t been authorized by the National Assembly in accordance with Article 338 of the Constitution, and it is therefore illegal.
Of course, if you read what the government’s pages and decrees say about everything that the monetary conversion should accomplish, everything looks wonderful: “The change will strengthen confidence in the monetary sign and will reflect the strength of the national economy. The monetary reconversion aims to simplify the understanding, use, and management of the national economy”.
Ramon Lobo, president of the Central Bank of Venezuela, said that the South American nation is: “facing an inflationary process that is due to circumstances of economic aggression against Venezuela. That is why we are taking action to confront these attacks.”
More of the Same
For most Venezuelans, this speech sounds incredibly familiar to the point where it has no credibility at all. This has both good and bad repercussions. It’s good because the people know that it’s just another insane government measure to hide the real chaos and blame someone else, but the bad side is that Venezuelans have become some sort of accessories by getting used to this situation. Or rather, I would say, trapped in this situation of corruption and despair.
Analysts predict the same chaotic pattern that happened in 2007 during the presidency of Hugo Chavez where three zeros were also removed and the Bolivar was called “Strong Bolivar”. The objective was to make it easier to manage figures and accounting operations, saving time and resources with a currency that would not lose value and would remain stable. The same year, this new coin was established, inflation reached 22,5%; five more points than the previous year, and increased more and more for the next four years.
What’s the reason for this? It is impossible to fix an entire country’s economy by making coins easier to read and handle.
Venezuela’s economic inflation hasn’t stopped since then and the currency loses its value even more, and the lower-denomination pieces are being depreciated. They are becoming useless for everyday transactions. The government’s answer for this huge problem is to print more bills with a higher denomination (which, by the way, are all imported and more expensive) in a disorganized way and being in debt with the countries involved in the printing process. Once again, this means stumbling and falling on the very same stone.
Show Me the Money
The increase in public spending and high prices began to generate cash problems in mid-2016, and in November and December of that year, there was a crisis with banknotes. At the end of 2016, president Maduro declared that the Bs 100 banknote, the most widely printed one that only retained 2% of its purchasing power, would be extinct in 72 hours. A few days later, a new currency was announced with no banknotes available. Surprise, surprise! More chaos!
For a week there was absolute chaos. In the countryside, there were deaths and looting. Credit and debit cards collapsed along with the banks. People were unable to pay for public transport, etc… In January 2017, Maduro decided to extend the use of the Bs 100 banknote and that “week” was continuously extended until May 20th, 2018. Coincidence? I don’t think so.
Although the authorities said that the banknotes were being taken away because of a new Bolivar Soberano currency coming, the reality is that the Government needed notes to meet the year-end payments and pension.
In January 2017, the president admitted: “At the time I decided to give 72 hours as a radical measure for the re-entry of the 100 bolivar notes, we didn’t have pieces for a day of operation and we needed to pay the pensions.”
No wonder why Venezuelans feel mocked.
The Bolivar Soberano Conversion
Now, in 2018, the government is planning to do the same. What are they going to do with the current banknotes which already have no purchasing power? The decree of the monetary reconversion indicates that they will be picked up by June 3rd and have no value at all after June 4th.*
With the economic crisis Venezuela is going through, there is no way that the government would be able to import new banknotes to replace the current ones in less than two months without leaving the people without cash. It’s simple math.
There are more problems. The fleet of vehicles for money distribution is affected by mechanical problems. All ATMs that are damaged by deterioration and lack of use have to be fixed first. Upgrading the software to recognize the new banknotes has to be done.
Hyperinflation will continue and within six months a new brand of higher denomination banknotes will be necessary. Because this officialdom doesn’t learn… or, even worse, it pretends not to learn while Venezuelans blame each other, for voting or not voting, for emigrating or not, for being red or blue, without realizing who the real enemy is.
*Update: by the time I finished this article the government decided to postpone, once again, the Bolivar Soberano currency conversion process.