The Central Bank of Venezuela made an announcement on August 6 to launch its digital currency ‘Digital Bolivar’ in October alongside a monetary sovereignty that will cut six zeros from the Bolivar due to hyperinflation.

To encourage Venezuelans for using a CBDC (Central Bank Digital Currency) and to simplify regular transactions, the Central Bank of Venezuela revealed its plan to print new bills that will come into action from October 1. The bank tweeted the name of the currency will be “Bolivar Digital”. The announcement was first made in the Bank’s social media and confirmed later on the official website of the People’s Ministry of Economy and Finance.

The ‘Digital Bolivar’ is an example of CBDC- a digital version of a traditional sanction currency issued by a country’s central bank, in contrast to decentralized crypto asset such as BTC. As a part of cutting six zeros from the currency, its cash equivalent will get a new 1 Bolivar coin and banknotes ranging from 5Bs. to 100Bs.

The CBDC along with an SMS based exchange system will enable payments and transfers between its users. The central bank stated, “The bolivar will not be worth any more or any less, in order to facilitate its use, it is being taken to simpler monetary scale.”

Although dollars is favoured by most in the country, bolivars are needed for daily transactions.  President Nicolas Maduro has vowed to protect the use of Venezuela’s currency even if it has permitted widespread acceptance of the U.S dollars. Bolivar will be getting a new look in more ways than one, as it intended to suppress raging inflation that has been in place since 2017.

“Removing those zeros does not solve, at all, the reason the originated the problem,” said Luis Vicente Leon, an economist and President of Caracas- based Datanalisis. He also criticised, “Without resolving the root of the issue, we will have the same problem in months.”

The Venezuelan government has made similar changes to the bolivar before, having cut eight zeros since 2008, not including Thursday’s decision. It has launched a cryptocurrency named Petro in 2018.

Joyashree Dey

CBW - External Analyst

INDIA