Why is Venezuela pulling its biggest banknote out of circulation?

Facing the world's highest inflation, Venezuela's government hopes that replacing the 100-bolivar bill will combat smuggling on its border with Colombia, and help pull it out of economic collapse. The bill is worth less than 2 US cents.

Photo by: Reuters
Photo by: Reuters

Venezuela is facing the world's highest inflation.

What is the problem with the 100-bolivar bill?

Venezuelan President Nicolas Maduro said organised crime networks on the border with Colombia are using the 100-bolivar notes to buy government subsidised food. The goods are then sold in Columbia with huge mark-ups.

"You can stay outside with your scam,” Maduro, who took office three years ago, said.

What happens when the notes are pulled?

Authorities will start releasing six new notes and three coins on Thursday. The largest denomination will be worth 20,000 bolivars, less than $5 on the street.

Maduro said that pulling the 100-bolivar will make it difficult for gangs operating on the border to repatriate the notes. Critics said the move was economically nonsensical and that there would be no way to swap the six billion 100-bolivar bills that were in circulation by Wednesday.


Critics believe 72 hours is not enough time to switch over to the new bills. (Reuters)

What is behind Venezuela’s economic crisis?

Falling prices for Venezuela’s crucial oil exports have caused a shortage of dollars in the country, raising the prices of imported food, medicine, and other crucial goods.

Depressed oil revenue has forced Maduro’s government to cut its social programmes, angering the poor.

The opposition blamed Maduro for the crisis but he accused the United States and big business of sabotaging the economy by cutting oil production.

How bad is the economy?

Venezuela is facing one of the world's highest inflation rates, and the International Monetary Fund (IMF) has forecast that inflation will hit 475 percent by the end of this year.

The bolivar has dropped 55 percent against the US dollar on the black market in the last month. Food prices have shot up by 25 percent between March and April.  

Will the new bills make a difference?

The new banknotes will try to ease the current situation where Venezuelans carry backpacks full of bills while cash machines run out of money as people make long queues to withdraw cash.

At about 2 US cents, a 100-bolivar bill can barely cover the cost of a piece of candy, while a stack of 50 notes is needed to buy a hamburger.

It is unclear whether it will stop smuggling or not.

 

Source: 
TRTWorld and agencies