Cash crunch: how Venezuela inadvertently became a cashless economy
John Otis in Caracas
The Guardia, December 1, 2017
Venezuela's currency,
the bolívar, is named after Simón Bolívar, the 19th-century hero revered across
South America for leading the fight for independence from Spain. But the recent
history of the banknote he inspired is far less glorious: low-value notes have
been rendered practically worthless – and now Venezuela is running out of them.
The cash crunch is so
acute that ATMs now provide a daily limit of 10,000 bolívars, enough to buy just
a few cups of coffee. Black-market money changers charge commissions of up to
20% to score paper money for small business people who pay their workers in
cash. Banks are running out of banknotes.
"Sometimes, bank
tellers will only pay you half of your pension and suggest that you come back
later for the rest," said Marta Milano, who was waiting in a long line
outside a state-run bank in Caracas hoping to collect her pension.
Although many nations
are moving away from paper money in favor of electronic payments – for
convenience and to reduce street crime – critics contend that Venezuela is
inadvertently turning into a cashless society thanks to economic blunders by
President Nicolás Maduro's socialist government.
Out-of-control state
spending, government currency controls and other policies have led to what many
describe as hyperinflation, as well the collapse of the bolívar – which now
trades at about 107,000 to the pound on the black market.
Now, there is not
enough cash in circulation to keep up with soaring prices.
Jean Paul Leidenz, a
senior economist at the Caracas thinktank Ecoanalítica, says there are about
13bn banknotes in circulation in Venezuela. But about half of these are
100-bolívar notes, each worth a small fraction of one penny.
The central bank has
introduced higher-denomination bills, including a 100,000-bolívar note. But
these new banknotes are printed in Europe and the government, which is dealing
with falling production of oil – its main export – and massive foreign debt,
lacks the money to import enough of them to meet demand.
"Prices are
doubling around every two months. So at that rate of price increases you can't
keep up with inflation even if you start importing bills," Leidenz says.
He and other analysts
are calling for market reforms, including the lifting of government currency
controls, to help combat inflation and boost national production amid
Venezuela's worst economic crisis in modern history. But the Maduro government
has made no effort to change tack.
President Maduro blames
the cash shortage on private bankers who he claims are working in cahoots with
President Juan Manuel Santos of neighbouring Colombia, who has criticized
Maduro for cracking down on democratic freedoms.
Maduro insists that
bankers are smuggling cash across the Venezuelan-Colombian border as part of an
elaborate conspiracy to sabotage the economy and bring down his government.
"Juan Manuel
Santos of Colombia along with the [border] mafias are leading this attack
against Venezuela. They are stealing 50- and 100-bolívar banknotes to take them
out of the country," Maduro said in a recent speech.
He did not, however,
explain why smugglers would covet nearly worthless banknotes or why spiriting
them out of the country would threaten the Venezuelan economy.
Instead, Maduro tried
to paint the cash crisis as an opportunity for Venezuela to ditch cash
altogether. He said that by next year, up to 95% of all payments in Venezuela
should be done electronically.
That's already starting
to happen, though critics point out that the transition stems from a dearth of
cash rather than ahead-of-the-curve planning by the Maduro government. These
days, Venezuelans pay for the smallest purchases – from a pack of gum to
newspapers – with credit or debit cards.
At an outdoor produce
market in Caracas, electrician Edinson Sua whipped out his debit card to pay
for a few kilos of potatoes and carrots. He said he saves his scarce bolívar
notes for bus fares and other transactions that require cash.
"I almost never
use cash except in a real emergency," he says.
But paying with plastic
creates new problems. The rising number of electronic transactions can cause
internet connections for card readers to collapse. Empty shelves at
supermarkets prompt many Venezuelans to seek out black-market vendors who sell
milk, rice and other basic staples but accept only paper money.
What's more, about 40%
of Venezuelans do not have bank accounts. For them the daily scramble for cash continues.
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