The Strategist

Venezuela introduces 100 thousand bolivars banknote

11/03/2017 - 11:33

The Venezuelan authorities put into circulation 100 thousand bolivars, the largest banknote in the country's history. In their opinion, this step should stabilize monetary circulation in the country. At the rate of the black market (the official rate actually does not work in Venezuela) 100 thousand bolivars correspond to $ 2.4. The introduction of a new bill was necessary because of the extremely high inflation rate – it is forecasted that inflation could reach 2300% in the next year.

On Wednesday, Venezuelan President Nicolas Maduro announced issuance of a new bill denominated 100 thousand bolivars, which corresponds to $ 2.4 for an exchange on the black market (it is approximately 10 bolivars at an official rate of $ 1, but it is impossible to change money at this rate). This is the largest denomination in the history of Venezuela. Just over a year ago, the biggest bill was 100 bolivars, and the country introduced 500, 5 thousand and 20 thousand bolivars in early 2017.

As Nicholas Maduro stated in a television speech, the introduction of a new bill should stabilize the circulation of money in the country. He also accused President of neighboring Colombia Juan Manuel Santos in a currency attack, hinting at illegal currency trading on the border between the two countries. According to Mr. Maduro, this problem should leverage full refusal of cash payments planned for the next year.

Venezuela has struggling with a protracted economic crisis for already several years. According to IMF forecasts, Venezuela's GDP will fall this year by 12%, and by 6% - in next. It was necessary to issue a new bill because of the extremely high inflation in the country – it reached 536% from January to September 2017. According to the IMF, next year it can jump to 2300%, which is the highest level in the world. The second place in the ranking is taken by the Democratic Republic of the Congo, where inflation in 2018 is projected to be 44%.

It is also expected that the unemployment rate in Venezuela will reach 30% next year - the country also ranks first in the world in this indicator. This week, Nicholas Maduro announced a 30 percent increase in the minimum wage. From November 1, it will amount to 177.5 thousand bolivars, which corresponds to $ 4.3. Nevertheless, after the current increase, the minimum wage due to inflation will actually be one-third less than in September, when its level rose for the last time.