The Central Bank of Venezuela will launch a central bank digital currency (CBDC) in October alongside a monetary redenomination that will cut six zeros from the currency due to raging inflation.
As of Oct. 1, the digital Venezuelan bolivar will begin circulation in the economy. Its cash equivalent will get a new 1-bolivar coin, along with banknotes ranging from 5 bolivars to 100 bolivars as part of the six-zero readjustment of the currency.
The Central Bank of Venezuela made the announcement on Friday. The CBDC will be accompanied by an SMS-based exchange system to facilitate payments and transfers among its users. The bank claimed that the CBDC and redenomination of the currency will have no effect on the bolivar’s value and that the overhaul is part of a move to simplify the use of the currency.
“The bolivar will not be worth any more or any less, in order to facilitate its use, it is being taken to a simpler monetary scale,” the central bank said.
Venezuelan President Nicolás Maduro first teased the idea of a digital bolivar back in February as he outlined the issuance of CBDC as one of the actions the government was taking to modernize and rebuild the economy.
This is the second time in three years that Venezuela has readjusted the bolivar after Maduro cut five zeros from the currency in 2018 as inflation hit its peak of 1.8 million percent. In 2020, the annual inflation rate was estimated to be around 2,300%.
Luis Vicente León, economist and president of Caracas-based Datanalisis, criticized the move, telling Bloomberg on Thursday that another redenomination of the currency will do nothing to address the underlying issues that are debasing its value:
“Removing those zeros does not solve, at all, the reason that originated the problem. Without resolving the root of the issue, we will have the same problem in months.”
Venezuela has been dealing with a long-running economic crisis as the economy suffers from U.S. sanctions and hyperinflation. In September 2020, Maduro proposed an anti-sanctions bill that sought to use crypto as a tool to evade the sanctions imposed on the country.