Venezuelan Inflation Hits Currency With Arrival of Bigger Bills
(Bloomberg) -- After years of soaring prices reduced the value of the largest 100-bolivar bill to just a few U.S. cents, Venezuelan authorities are finally preparing to issue larger-denomination bank notes, much to the relief of shoppers.
The notes -- 500 and 5,000 bolivars -- will be released toward the middle of next month, said a senior government official who isn’t authorized to talk about the plans publicly. Additional bills of 1,000, 2,000, 10,000 and 20,000 bolivars will enter circulation in the first half, the official said.
The refusal of the authorities to issue bigger bills had forced Venezuelans to ditch wallets in favor of bags of cash for everyday transactions. Things have got so bad that some shopkeepers weigh wads of bank notes instead of counting them to save time. Inflation will probably end the year at 368 percent, according to the median estimate of 14 analysts who responded to a Bloomberg survey. While it will accelerate further next year, it won’t reach four digits, said the official.
Venezuela’s money supply has risen 130 percent over the past year, according to the latest data available from the Central Bank in Caracas and compiled by Bloomberg. On the black market, where a dollar costs more than six times as much as the weakest legal rate of 662 bolivars per dollar, the currency has slumped 65 percent this month alone.
The new bills will have a similar design to the notes currently in circulation but will have different colors, the official said.
International reserves hovering near a 14-year low of around $10.9 billion probably won’t fall much further, the official said, declining to specify the current composition.
The weakening of the currency, rising inflation and declines in real purchasing power will not likely stop until the government sees more dollars flowing into the economy through higher oil prices or other economic activities, the official said. While crude exports account for about 95 percent of the country’s foreign currency earnings, the government eventually wants to bring that rate down to 40 percent by developing mining, tourism, and agricultural exports, according to the official.
The government will use a new currency law signed by President Nicolas Maduro on Monday to allow for the increased the use of U.S. dollars in the tourism sector, the official said, adding that duty free stores at airports would begin to price and sell products in dollars to both traveling Venezuelans and foreign visitors.
The government is also planning to designate and develop certain tourist areas, including Margarita Island’s Macanao Peninsula and nearby La Tortuga island, as dollar-only resort zones where visitors of any nationality -- including Venezuelans -- will pay for goods and services in dollars, the official said. Most tourist areas that Venezuelans currently frequent, including the Los Roques archipelago, will continue to price goods and services in bolivars, although dollars will be accepted, the official added.
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