The Venezuelan Central Bank implemented the plan to rename the national official currency, the bolivar, on October 1. This renaming included cutting six zeros from the currency, to facilitate payments and handling of the currency, according to previous statements. However, just hours after this measure was applied, the bolivar lost more than 20% of its value against the US dollar.
Venezuela withdraws six zeros from its currency
The Venezuelan Central Bank, the institution that dictates the country’s monetary policy, has implemented the renaming of its fiat currency, the bolivar, to simplify the procedure for paying and processing large sums of money. The renaming involved cutting six zeros from the current value of the currency, making 1,000,000 bolivars only one bolivar now.
The measure was announced in August, when the central bank announced the change of the currency’s name to “digital bolivar,” which sparked speculation about the possible issuance of a digital currency for the country’s central bank. But the bank did not submit any reports in this regard and instead announced the issuance of new bills to complete the re-nomination plan.
Banking and financial institutions suspended their services to the public on September 30 to implement necessary changes to their articles of association to accommodate the amounts for the new reclassified currency.
Broken currency devaluation
But even with this action taken, the so-called digital bolivar is still losing its value at a rapid pace. According to one of the most popular Venezuela dollar rates website, Monitor Dolar Paralelo, the exchange rate rose from 4,317,970.70 bolivars per dollar to 5,140,000 (or 5.14 in the reclassified currency) in just two days. This means that the fiat currency has lost 19% of its value on the verge of the reset plan.
Some analysts have reported that the government is likely to enter the foreign exchange market by injecting resources to keep the exchange rate low in the short term. Tomas Socias Lopez, a Venezuelan analyst, announced to local media that the government could provide liquidity to the exchange market of up to $30 million every week, with the aim of keeping this rate artificially low.
However, this decision will be costly for the Maduro government, which will have to divert resources destined for other purposes to control the exchange rate. The country is now facing a fuel shortage, and citizens have to endure large queues to fill their tanks due to several factors, including the poor condition of local refineries.
This is why more and more Venezuelans are considering cryptocurrencies as an alternative source of investment and savings. But the dollar is still the main currency of the country, which is going through an unofficial process of dollarization.
What do you think of the plan to rename Fiat in Venezuela? Tell us in the comments section below.
photo credits: Shutterstock, Pixabay, Wikicommons
disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services or companies. Bitcoin.com does not provide investment, tax, legal or accounting advice. Neither the Company nor the author shall be liable, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.