In a surprise move on Sunday, Venezuela’s President Nicolás Maduro ordered all 100-bolívar bank notes out of circulation within 72 hours, as the country’s currency continues to plummet in value against the dollar, creating worsening shortages of hard cash in the struggling South American country.
“There has been a scam and smuggling of the one hundred bills on the border with Colombia. We have tried the diplomatic way to deal with this problem with Colombia’s government; there are huge mafias,” President Maduro said on state television.
Maduro said he was signing a new emergency economic decree, which according to the Bank of Venezuela would see around half of all currency out of circulation, to fight “currency attacks” and an alleged “economic war” being waged by the US Treasury.
He added the gangs held more than 300 billion bolívares worth of currency, most of it in 100-bolívar notes.
The IMF estimates inflation of more than 2,000% for this year in Venezuela
There were “entire warehouses full of 100-bolivar notes in the [Colombian cities of] Cucuta, Cartagena, Maicao and Buaramanga,” the Venezuelan leader said.
Maduro said part of the plan was to block any of the 100-bolívar notes – the country's highest denomination bill and the most widely used in everyday transactions – from being taken back into the country so the gangs would be unable to exchange their hoarded bills, making them worthless.
Many Venezuelans living near the border buy Colombian pesos to purchase goods in Colombia which they cannot get in Venezuela due to severe and chronic shortages.
With the value of Venezuela’s largest banknotes reduced to a few US cents by triple-digit inflation and the currency’s collapse on the black market, the country’s central bank said it should begin circulating higher-denomination notes by December 15. The lowest denomination note will be 500 bolívars while the highest will be 20,000 bolívars.
Venezuela’s consumer economy is largely cash-based and lines at automated teller machines are commonplace, and sometimes cash can’t be withdrawn at all.
The move is to fight an “economic war” being waged by the US Treasury
The bolívar has lost around 60% of its value over the last month, making it impossible for growing numbers of people to buy goods and sending prices soaring. The dollar is now the de facto currency. The International Monetary Fund estimates inflation in Venezuela is running at 2,220% for this year.
Analysts say the government’s move is an attempt to influence the dollar exchange rate. Internet site Dólar Today calculates the rate between the bolívar and the Colombian peso, and then how many dollars those pesos will buy. This indicator has been the means by which Venezuelan businesses calculate the replacement costs of goods.
English version by Nick Lyne.