Venezuela’s president Nicolas Maduro announced yesterday (July 25th) that the country’s new currency, the Bolivar Soberano will begin circulating on August 20th. It will be anchored to the state’s self-sponsored digital currency Petro, which was launched in February.

As Venezuela’s economic troubles endure, President Maduro is trying another tactic, issuing a new domestic currency which will scale down the volume of currency traded at the moment. The Bolivar Soberano will essentially be a scaled down version of the current Bolivar Fuerte, with five zeros removed from its value. Further to this, it will be anchored to Petro, the oil-backed crypto launched by the country in February.

According to local news agency Telesur, this action is being taken in order to “align the financial and monetary system in the country in a radical manner.”

Reconversion of the currency and anchoring to the state crypto is hoped by Maduro to be the key in developing a “productive, diversified and sustainable economic model.” They certainly need it: Venezuela’s inflation is currently running towards one million percent and one dollar equals around 119,900 bolivars at the current rate. The money in Venezuela has so little value that useless banknotes notes are being repurposed and made into handbags.

Maduro explained that the new currency conversion would help mitigate the problem of valueless money, as well as help tackle long lines at ATMs and banks. He expects this because of the currency’s tie to Petro, about which he stated,

“[Petro] will end up being consolidated technologically and financially … [and embrace] all national and international economic activity.”

This action has nevertheless come under strong criticism so far. “It does not solve anything”, stated economist Maxim Ross. Striking the same tone, opposition legislator and economist Angel Alvorado put it bluntly, “Taking zeros off the money doesn’t fix a thing.” Inflation will continue to rise uless more targeted work is done.

The results of an anchoring to Petro will remain to be seen. The digital currency has found itself struggling since its release due to American hegemony in global trade creating obstacles for its exchange and usage. The Venezuelan government meanwhile has begun a number of social projects backed by Petro including housing for the homeless and youth programs.

Venezuela’s long-standing financial turmoil has led to the rise of other forms of payment including cryptocurrency use in the country. Many people have bought bitcoins as a store of value and use dollars for everyday transactions.

Image Source: “Flickr”