The Central Bank of Venezuela will launch a central bank digital currency (CBDC), the digital bolivar, in October. BCV will also remove six zeros from its currency in order to save a currency that has been racked by years of hyperinflation.
“As of October 1, 2021, the digital bolivar will come into effect by applying a monetary scale that removes six zeros to the national currency. That is all monetary amounts expressed in national currency will be divided by one million (1,000.000),” said the BCV.
The digital bolivar will use an SMS-based exchange system to facilitate payments and transfers among its users. The BCV states the changes will bring positive improvement to the fiat currency, paving the way for the national economy. The Bank claimed that CBDC and redenomination of currency will have no effect on bolivar’s value and use.
This is not the first process of reconversion of the local currency. This is the third time the country’s government has made an adjustment to its currency over the past 12-13 years. In 2007, the central bank eliminated three zeros, and a strong bolivar was born. Eleven years later, it removed five zeros, and the sovereign bolivar emerged.
“Dropping zeros may temporarily make transactions easier, but it will not address underlying causes of instability, including mistrust in the currency and massive public spending that’s not backed by local production,” said Luis Vicente Leon, an economist, and president of Caracas-based Datanalisis.
“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,” said Luis.
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“The bolivar will not be worth any more or any less, in order to facilitate its use, it is being taken to a simpler monetary scale,” the central bank said in a statement. It will print physical money, including 1-bolivar coin and new bills of 5 to 100 bolivars. The largest bolivar bill will be worth approximately $25.
The BCV added that “the reference exchange rate will continue to be the one determined by the Venezuelan exchange market system.”
Countries like the US, India, UK, Australia, Brazil are also exploring the CBDC. However, China tops the race of CBDC and is currently in its testing phase.
