Venezuela’s government unleashed the new sovereign bolivar on Tuesday in an attempt to curb hyperinflation, coming on the heels of a 3,000% minimum wage hike intended to stanch the exodus of economic refugees.
“A historic economic change has begun! We welcomed the sovereign bolivar with the successful adaptation of the entire national banking platform,” said President Nicolas Maduro. “We will achieve stability with economic and macroeconomic balances for the good of all and all Venezuelans.”
The opposition to Maduro’s socialist government called for strikes on Tuesday.
With the redenomination, the official foreign exchange rate is now closer to the black market rate for dollars. One sovereign bolivar is worth 100,000 old bolivars. Maduro’s idea was to anchor the new sovereign bolivar to the Petro, his country’s cryptocurrency that is supposedly tied to the price of oil, but that the U.S. Treasury calls a scam. Maduro says one Petro is now equal to 3,600 sovereign bolivars. The Petro is also supposed to be equal in value to one barrel of oil, which is about $60. That means $1 is worth 60 sovereign bolivars, or 6 million old bolivars.
“He might as well have chosen pegging it to unicorns,” Russ Dallen, head of Caracas Capital, told the Financial Times.
Venezuelans lined up at ATMs Tuesday to collect the new currency, but they’re limited to withdrawals of 10 sovereign bolivars per day. The new and old currencies are in circulation simultaneously, confusing vendors and citizens. Venezuela’s inflation rate is on track to hit 1,000,000% this year, which the IMF has compared to the hyperinflation seen in Germany in the 1920s and Zimbabwe in the 1990s. Just last week the inflation rate was 32,000%.
Previously, the official foreign exchange rate was about 250,000 bolivars to one U.S. dollar. But on the black market, a dollar cost upwards of 3.5 million bolivars. Currency traders interviewed by Planet Money were in hiding after helping Venezuelans exchange their bolivars for dollars in an online market. But who was buying the increasingly worthless bolivars? Government officials who had access to the official foreign exchange rate.
To make matters worse, a 7.3 magnitude earthquake hit Venezuela on Tuesday. (The local seismological service reported its strength at 6.3.) No deaths have been reported. And on Monday ConocoPhillips won a $2 billion settlement as compensation for the oil operations seized by Venezuela’s state oil company in 2007. Venezuela has already fallen behind on more than $6 billion in bond payments.