Venezuela, a country struggling with hyperinflation, is going to redenominate its national currency and will also launch a central bank digital currency (CBDC), digital bolivar, which will be put into circulation from October 1.
The Central Bank of Venezuela announced on Thursday it will adjust six zero’s to its hyper-inflated fiat. It will launch a one bolivar coin, along with banknotes denominated between 5 Bs to 100 Bs.
This step came when Venezuela is suffering from hyperinflation for years now. The country’s inflation peaked in 2018 with a rise of 1.8 million percent, while in the consecutive two years it saw inflation of 9,500 percent and 3,000 percent, respectively.
The latest redenomination of currencies would be the third in the country’s recent history. Venezuelan Late President Hugo Chavez first changed the currency value at 1000-to-one, while his successor Nicolas Maduro made a 100,000-to-one in 2018, right at the peak of the hyperinflation.
The country’s national currency is so battered that most of the local economy now runs on US dollars, despite the US sanctions in place.
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The Digital Economy Push
President Maduro first unveiled his plan to launch a digital version of its fiat last February, when he projected his plan to completely digitize the Venezuelan economy by the end of 2021. He even claimed that the country’s economy was already 77 percent digitized by the end of 2020.
The upcoming digital bolivar will use an SMS-based exchange system for transfers and transactions between the users. Additionally, the central bank highlighted that the digital version of the fiat will not affect the value of the bolivar in any way.
Moreover, Venezuela launched Petro in 2018, a digital currency backed by the country’s rich oil reserves. Though the government tried to circumvent the US sanctions with Petro and pushed citizens to use the digital currency, those efforts failed.
Other than Venezuela, several other countries around the world are either considering or testing the launch of their individual digital fiats. While some smaller countries have already launched CBDCs, China is expected to be the first major economy to circulate the digital yuan.