The Venezuelan government issued last week a decree that intended to completely remove the 100-bolivar bill from circulation within 72 hours. The declaration caused widespread panic, as Venezuelans had to exchange their 100-bolivar bills, the largest and most commonly used denomination, in a very short time. The aftermath of the declaration caused several protests that left wounded and dead behind, all of which triggered Maduro to extend the withdrawal until January the 2nd.
What made the whole episode worse, especially when seen from abroad, is the fact that Venezuela’s astronomic inflation meant that the 100-bolivar bill is worth a measly 2 cents of a USD in the black market.
Economist Jose Toro Hardy argues that this debacle has been building up since Chavez’ presidency, and that nothing has been done to avoid it.
The first mistake according to Toro Hardy, was made my Chavez when he asked the Venezuelan Central Bank for a million to aid agricultural workers. From that point onwards, the Central Bank lost all credibility, and in the eyes of the government it was no longer a regulatory entity with a responsibility to keep inflation in check, instead it became the government’s own mint.
When facing debt or unexpected payments, the government simply printed ‘inorganic’ money to pay for it, setting a precedent for the hyperinflation we see today.
A second crucial mistake was Chavez’ decision to create the ‘bolivar fuerte’ by removing three zeroes to the existing bolivar. Chavez’ failure to address a serious fiscal deficit before introducing the new currency meant the ‘bolivar fuerte’ was born weak, and would never build purchasing power.
Those policies set the snowball in motion, and at current rates, you would need 10,000 present-day bolivars to buy the same thing you could buy with the 100-bolivar bill in 2008.
In an attempt to divert attention from inflation, President Maduro declared that the reason why the 100-bolivar bill had to be cycled out was that it was being hoarded by ‘mafias’ abroad, specifically in Colombia and the United States, causing its value to drop. Maduro claimed the US Treasury was to blame, as they were using this strategy to topple the government in Venezuela, and in Colombia he argued that by hoarding the 100-bolivar bills they could keep the bolivar weak and ensure Venezuelans continue to cross the border to purchase their goods.
Whatever Maduro may try to convince his people of, the truth is that the whole 100-bolivar bill catastrophe is not a product of the immediate circumstances. It comes as a result of a long history of economic mismanagement and an absolute lack of Central Bank coordination, and what is worse, a complete disregard for the consequences of such an alarming rate. As of now, there are now solutions put in place to solve the inflation crisis, instead, the government continues to point fingers.