Venezuela’s latest efforts to dampen the spiraling hyperinflation that has crippled the economy has seen it introduce the “sovereign bolivar” and link it to the country’s official cryptocurrency, the petro.
The country has taken this nearly unavoidable step after the IMF predicted hyperinflation of 1,000,000% by the end of this year. Venezuela has devalued its national currency, the bolivar, by 95% and opted to tie it into the petro, its oil-linked cryptocurrency.
Coming into effect today, the effort is part of several key measures from Nicolas Maduro’s government to stave off an increasingly struggling populace amid shortages of vital goods, including fuel, medicine and food.
The changes to the bolivar will also hugely affect its exchange rate with the US dollar. One dollar will now fetch around 6m sovereign bolivars, up massively from a relatively low exchange rate of one dollar to 250,000 bolivars.
To help taper the inflation that has rocked Venezuela over the last few years, the bolivar will now move in line with the petro, which is itself backed up by the nation’s plentiful oil reserves. The petro also connects to the wider oil market as a whole and is worth around 3,600 sovereign bolivars, or $60.
Stripping measures have also reduced the new sovereign bolivar in relation to the dollar. In a move that is likely to seem complicated at first to those watching and using the currency, five zeroes are being removed from the bolivar. This act was rumored several weeks ago.
Rounding off the new currency measures is a gigantic increase to the minimum wage of citizens, which has increased by 3,000%.
Based on the new re-denominations with the reduction in zeroes taken into account, the minimum wage is now 1,800 sovereign bolivars a month compared to the 1.8m bolivars that a person receiving this wage rate would have collected previously. It is now worth around $30 a month.
Other economic measures introduced to help offer some stimulus and savings to the Venezuelan economy include ceasing some gasoline subsidies targeted to those outside the country and raising Venezuela’s version of a Goods and Sales Tax by 4%.
While these new policies may improve immediate numbers, analysts are not convinced that they will have a positive long-term effect, as they do not tackle any of the root causes of inflation crippling the Venezuelan economy and could even cause inflation to spiral further.
The minimum wage measures have shop owners wondering if they have enough cash flow to pay their staff in line with the new rules. It is not yet known if these changes will encourage the average Venezuelan to spend more and boost the economy.
The difficult times that the country is facing has seen many of its citizens turn to its neighbors for help and refuge, with some 400,000 residents already having left for Ecuador.
In Brazil, meanwhile, the military has come in to disperse attacks on Venezuelan migrants entering through the Brazilian border and heavily monitor the flow of entrants.
In potential positive news for Venezuela, the general trend of a rise in oil prices is likely to boost the strength of the petro cryptocurrency now linked to its national currency, which might lead to some relative stability.