The Central Bank of Venezuela issued an official statement yesterday on the implementation of a new redenomination plan for its fiat currency after the measure was leaked by some sources last month.
The plan, called by the authorities “Digital Bolivar,” contemplates slashing six zeroes from the current value of the fiat currency to ease the process of making payments and transactions. At the time of writing, there is an exchange rate of 4,000 VES per dollar, which results in uncomfortably large amounts when making transactions or payments in fiat currency.
The Central Bank of Venezuela states the change will bring positive improvements to the fiat currency, paving the way for a recovery of the national economy that, according to the bank, has been wracked by a series of economic attacks and a financial blockage, referring to the economic sanctions that the government of the U.S has exerted over the country.
While the redenomination plan is called the “Digital Bolivar,” no central bank digital currency has been proposed in the issued statement. The name is derived from the objective of the measure, which is to “reduce transaction costs in the economy” and “advance in the construction of a modern vision of the currency in everyday transactions.”
This is the third redenomination plan that the Venezuelan government has executed in less than 15 years, a testament to the humongous inflation the country has faced during this period. The first redenomination plan, which changed the name of the currency by adding the “strong” prefix to its name, happened in 2008 when three zeroes were slashed from the currency.
However, inflation and devaluation continued, and authorities had to coordinate a new redenomination plan that slashed five zeroes from the currency in 2018. These conditions have made Venezuela a fertile ground for alternative currencies and payment systems, due to the dramatic collapse of the fiat, which has made traditional saving methods almost useless.
The adoption of this plan also contemplates the printing of new bills according to the new value of the currency. The implementation of this plan is slated to happen on October 1, when all financial institutions and payment processors will have to adapt their systems to support it.