Venezuela devalues bolivar by 96% under new rate

The central bank of the crisis-hit country announces a new exchange rate amid hyperinflation

Agence France-Presse

6:35:47am August 22, 2018

6:40:21am August 22, 2018

DEVALUED. Venezuela devalues the bolivar as it deals with an economic crisis. File photo by Federico Parra/AFP

DEVALUED. Venezuela devalues the bolivar as it deals with an economic crisis. File photo by Federico Parra/AFP

CARACAS, Venezuela – Venezuela's government devalued the bolivar by 96% on Tuesday, August 21, under a new exchange rate announced by the central bank as it desperately tried to steer a way out of its economic crisis.

The announcement comes a day after new banknotes stripped of 5 zeroes entered circulation as part of a radical plan by President Nicolas Maduro to curb hyperinflation, though business leaders criticized the move as counterproductive.

The Central Bank of Venezuela set the rate at 68.65 of the new "sovereign bolivars" to the euro, equivalent to around 60 bolivars per dollar.

The previous rate was equivalent to some 2.48 sovereign bolivars to the dollar.

Expressed in the previous "strong bolivar" currency in effect until Monday, August 20, it amounts to a hike from 248,210 to 6,000,000 to the dollar.

After days of nervousness over the conversion to the new currency, businesses in the capital Caracas returned to a semblance of normality on Tuesday after a public holiday on Monday.

Some businesses remained shut in order to cope with the currency adjustments, while others joined a 24-hour strike called by the 3 main opposition parties to reject Maduro's policies.

From early morning, long lines formed at ATMs that dispensed the new bills, though withdrawals were limited to 10 bolivars each, insufficient to buy even a coffee in a country wracked by inflation.

"The banks are working and giving cash. I've been able to make transfers and payments, and everything is normal," Cesar Aguirre, a 38-year-old accountant, told Agence France-Presse after withdrawing money.

However, some shoppers voiced fears of rising prices.

"I was able to use my debit card, but everything is still expensive. Everything has increased, I bought a sandwich in Petare and it cost two million" of the old bolivars, said housewife Carmen Maldonado.

Fixed to the petro

The socialist president, elected for another 6-year term in May elections rejected by much of the international community as fraudulent, has fixed the currency to the country's widely-discredited cryptocurrency, the petro, which is in turn linked to the price of a barrel of Venezuelan oil.

But the move is a recipe for even more disaster, according to economist Luis Vicente Leon.

"Anchoring the bolivar to the petro is anchoring it to nothing," Vicente Leon told Agence France-Presse.

Andres Velasquez, one of the opposition leaders behind the strike call, estimated "60%" of the workforce had followed the strike, mostly in the provinces.

"This is a first step. This effort beginning today will culminate in a call for an unlimited general strike," he said, though he admitted Tuesday's participation was "disappointing."

In central Caracas, hundreds of people marched to the presidential palace in support of the head of state, who was later expected to participate in the march, marking his first public appearance since he survived an alleged assassination attempt at a military parade on August 4.

Millions fleeing

Some 2.2 million Venezuelans have fled the crippling economic and social crisis that developed under Maduro's rule, with the International Monetary Fund (IMF) projecting inflation to reach a staggering 1,000,000% by the end of the year. 

The new currency is part of an economic plan unveiled last week by Maduro that also includes a 3,400% increase in the minimum wage and a hike in gasoline taxes, which for years have been the world's cheapest.

The value-added tax, or VAT, is also climbing from 12% to 16%. 

The measures "will increase instability," said Carlos Larrazabal, president of the business federation Fedecameras.

Inflation rendered the old bolivar currency practically worthless, while the economic crisis has driven more than two million people to flee the country, according to the United Nations. – Rappler.com