On Monday, August 20, takes effect the monetary reconversion in Venezuela, a measure that reveals the serious inflationary situation in the South American country

On Monday, August 20, takes effect the monetary reconversion in Venezuela, a measure that reveals the serious inflationary situation in the South American country

On July 26, Venezuelan President Nicolás Maduro announced that his monetary reconversion plan, which takes effect on August 20, would cut five zeros of the national currency: the bolivar. The announcement of July 26 surprised, because previously Maduro had assured that only three zeros would be removed from the bolivar, a demonstration of how quickly the monetary situation in Venezuela is getting out of control.

Leer en español: Cinco ceros menos: ¿Venezuela ya no sabe cómo controlar la inflación?

Not being sufficient this measure as part of the monetary reconversion that is going to take effect on Monday, there is also a provision that will formalize the petro, the official cryptocurrency of the South American country, which will be anchor the value of the bolivar. From the trimming of zeros and the anchoring of the national currency to petro, the sovereign bolivar will come out, the new name that the Venezuelan currency will receive.

Of all the efforts to control inflation in Venezuela that the International Monetary Fund (IMF) predicted would reach 1,000,000% before the end of this year, this is perhaps the most radical. They are preceded by radical increases to the minimum wage, which multiplied its price 35 times, from 5.2 to 180 million bolivars.

“In 15 months, prices will be like today”

While cutting the zeros of the bolivar has practical applications, such as facilitate accounting records and the use of cash, economists agree that little can be done to fight inflation, the real problem for Venezuelans. The economist Alejandro Grisanti, of the Ecoanalítica firm, stated in a tweet that at the current inflation level the same five zeros will have to be removed again within 15 months.

“With a million percent annual inflation, four zeros are added to prices every 12 months. It will take only 15 months for the prices to be as they are today,” Grisanti assured.

You can also read: Venezuela: The impact of increasing the minimum wage, beyond the crisis

For his part, Steve Hanke, professor of economics at Johns Hopkins University, was also critical of the measure in his comments for the New York Times. “Zeros is a cosmetic change, it does not mean anything unless economic policy is also changed,” he said.

Implementation problems

Added to the already catastrophic inflationary situation in Venezuela, which has forced the Venezuelan population to get used to new prices every day, the implementation of this monetary reconversion will also bring confusion and inconveniences. El Tiempo reported that it is not yet known how long both coins, the bolivar and the sovereign bolivar will coexist.

In addition, banks have not yet reported arrivals of the new bills, when they are supposed to start circulating on Monday. While this is not enough, we still do not know what will be the value of the sovereign bolivar, nor of the Petro, which will have to start to follow closely, because with high inflation it will surely be devalued daily.

LatinAmerican Post | Pedro Bernal

Translated from “Cinco ceros menos: ¿Venezuela ya no sabe cómo controlar la inflación?”