Home Digital Currencies Venezuela to introduce digital currency amid redenomination

Venezuela to introduce digital currency amid redenomination

Venezuela: the crisis-hit country already has a state-backed cryptocurrency | Credit: David Mark; Pixabay

Crisis-hit Venezuela has confirmed plans to launch a digital currency alongside a monetary redenomination that will see six zeros chopped from its existing banknotes and coins.

The South American state’s central bank presented the new digital means of payment, the ‘digital bolívar’, to the banking sector earlier this month, saying it would ‘facilitate day-to-day transactions’.

The Banco Central de Venezuela (BCV) said the digital currency would facilitate daily transactions, ‘connect people with their currency sign’ (‘conectar a la población con su signo monetario’), and streamline trade and accounting processes. It would also, the central bank said, ‘guarantee the sovereignty of Venezuela to promote economic recovery in the face of constant attacks on our currency’.

The country of about 30 million people is suffering from hyperinflation, with the US dollar increasingly preferred by citizens and businesses. It also redenominated in 2018 and 2008.

The BCV’s president, Calixto Ortega Sánchez, met representatives of public and private banks to outline the digital bolívar, which will launch on 1 October. Attendees included the country’s vice-minister for digital economy, banking, insurance and securities, Román Maniglia, and the Asociación Bancaria de Venezuela (banks’ association).

Caracas gets ready for launch

In the run-up to 1 October, public and private banks will ‘continue the adaptation of their systems and technological platforms’ in readiness, according to the BCV’s communication.

The BCV, headquartered in capital Caracas, does not use the expression ‘central bank digital currency’ (CBDC) in its announcement and few technical details have so far been published. A notice on the finance ministry’s website republishes the BCV’s announcement.

Most media reports have, however, referred to the initiative as a CBDC. Crypto industry news site Coin Telegraph is among the media to have described a planned SMS-based exchange system that will facilitate payments and transfers among users.

President Nicolás Maduro first aired the prospect of the digital bolívar seven months ago, citing the project as among the “surprise” actions the government planned to take to modernise the economy.

The country issued a cryptocurrency, known as the petro, in 2018, backed by the country’s oil, gas and mineral reserves (hence its name), in a plan to circumvent US sanctions and access international financing. But the state-supported currency is not widely used, despite Maduro’s personal championing.

Crisis situation ongoing

The Covid-19 pandemic has compounded an economic and humanitarian crisis in the country.

About one in every three Venezuelans is ‘food insecure’, including 2.3 million people who are ‘severely food insecure’, according to a UN World Food Programme notice earlier this year.

The oil-rich country’s crisis has caused five million people to leave Venezuela seeking food, work, and a better life, according to the UN Refugee Agency (UNHCR) – one of the largest displacement crises in the world. The agency reports that there has been an 8,000 per cent increase in the number of Venezuelans seeking refugee status worldwide since 2014, mainly in the Americas. 

Despite the existence of petro, Venezuela ranks seventh on the forthcoming 2021 Chainalysis Global Crypto Adoption Index, a second iteration of the US-headquartered company’s efforts to measure grassroots cryptocurrency adoption worldwide.

A blog, published last week, reveals that the ranking is topped by Vietnam, followed by India, Pakistan, Ukraine and Kenya. The full report will be released next month.