In October, Venezuela will give its federal money, the Bolívar, a facelift. In addition to the restructuring, the central bank plans to establish its digital central bank (CBDC) – the digital bolivar. A new Bolívar Coin, banknotes of 5 to 100 Bs, is being launched by the Latin American country renowned for its oil riches. The digital bolivar will also disseminate across the economy.
According to today’s bank statement, the digital bolivar will make payments and transfers between users using an SMS-based mechanism.
The new 100 bolivar notes of the nation are equal to 100,000,000 of the existing bolivar. This is the third time in the last 12-13 years that the nation’s administration has adapted to its currency. In 2008, Late President Hugo Chavez made 1000-to-one changes, whereas in 2018, his successor, Nicolas Maduro. This is a million-to-one correction.
The CBDC is part of Maduro’s economic modernization agenda. In February, he stated that the digital bolívar was part of his goal to digitize the nation’s economy entirely by the end of the year. He claimed 77 percent of Venezuela’s economy was digital in 2020.
He was also behind a crypto coin dubbed Petro, which Venezuela’s vast oil reserves backed by a digital currency Maduro says debuted in 2018. The experiment was far from successful, though. Despite his attempts to compel local people, digital money faced rejection.
Inflation at Its Peak
The reshaping takes place against hyperinflation. According to the central bank, the level reached 3000% inflation in 2020 and 9500% in 2019. Inflation is so severe that the daily economy now primarily operates in dollars. Many shops have listed US dollar pricing, not bolivar prices.
This was also the goal of the Petro, established as the nation’s financial system in February 2018.
The mechanisms of the CBDC itself are less understood, although they will circulate together with the actual bolivar. The high inflation levels imply that there is not enough cash. The establishment of a CBDC may provide additional support for the cash output issues in Venezuela.
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