In the face of hyperinflation, Venezuela to remove six zeros from its currency - is Crypto the ultimate solution

By: Bharggavi Ssayee

In the face of hyperinflation, Venezuela to remove six zeros from its currency - is Crypto the ultimate solution

August 11, 2021 5:50 AM

Venezuela has been embroiled in a spiral of currency depreciation for many years, and things do not look set to end, especially with the embargo and sanctions from the United States. After an unsuccessful first national cryptocurrency test in 2018 - the Petro, indexed to a barrel of Venezuelan oil - the country is forced to repeat the experiment, in the face of another massive devaluation of its fiat currency.


A devaluation of exactly -99.9999%


Here we go again for a round, the government of Venezuela and its central bank have officially announced that they will launch a new cryptocurrency on October 1: the "Bolívar Digital".


Unlike the Petro, this time it will be a central bank digital currency (MNBC), as it will be issued and managed by the Banco Central de Venezuela.


This new form of Bolívar is accompanied by a very strong devaluation of its fiduciary version, since 1 Bolívar Digital will be worth 1 million current sovereign bolivars: it will be necessary to remove no less than 6 zeros (-99.9999%) to make the conversion. from the old to the new currency.

The “strong” fluctuations of Bitcoin? Talk to Venezuelans

This is the second time in three years that Venezuela has devalued its fiat currency, since the bolivar had already suffered a cut of five zeros in 2018.


And unfortunately (or fortunately in a sense), the fact that Bolívar Digital is digital or not will certainly reveal to the world what is obvious: MNBCs will also suffer from inflation (in this case hyperinflation) because they can always be printed at will by central banks.


As a local economist, Luis Vicente Leon (quoted by Bloomberg) sums it up very well:


“Removing those zeros does nothing to solve the root cause of the problem. Without fixing the root of the problem, we will have the same problem in a few months. ".


Because MNBCs will always be fiat currencies, that is to say, based solely on trust in a state and its central bank. If this confidence is already no longer good in the United States and the European Union, it is as much to say that it is null vis-à-vis the contested government of Nicolás Maduro.


If the Petro has already been a failure, he who was at least supposed to be backed by barrels of oil produced by Venezuela, it is feared that the Bolívar Digital will meet an even worse fate. Considering its risk of rapid depreciation, this MNBC may not do well with the few allies remaining in the regime, unlike bitcoins which have been accepted by Iran and Turkey in particular.