Inflation-fuelled banknotes will start at 100,000 bolivars
Venezuela has begun to import banknote paper and is mulling plans to print bills with larger denominations as hyperinflation causes shortages of cash, according to six people with knowledge of the matter.
The country has brought in about 71 tons of security paper this year from an Italian printer majority owned by the private equity firm Bain Capital, according to some of the people and data reviewed by Bloomberg.
The central bank is considering new bills starting at 100,000 bolivars, the people said. It would be the highest denomination yet, but still worth only about 29 cents Canadian.
The need for larger bills in Venezuela is a direct result of an ever-weakening currency and inflation that ran at an estimated 2,400 per cent in the past year, meaning that paying for a cart full of groceries now requires a bag of cash.
The 100,000-bolivar bill would match the biggest bill ever printed in Venezuela, one made two years ago during the days of the bolivar fuerte (the latest version of the currency is called the sovereign bolivar). The central bank is considering introducing even larger denominations down the line.
Earlier this year, Venezuela turned to a state-owned money printer in Russia to purchase 300 million new bills after racking up debts with De La Rue, one of the world’s largest makers of bank notes.
More than a decade of political mismanagement and failed economic policies means the national mint has to overcome a series of additional hurdles to introduce the new bill.
Reduced staffing due to the pandemic as well as a shortage of ink and technical challenges brought on by missing parts and frequent power outages have delayed attempts to get the printing equipment running, two of the people said.
The recent shipment will be the last from Fedrigoni, as it fulfils a contract signed in 2018, a year before Venezuela’s central bank was sanctioned by the U.S. in efforts to cut off Nicolas Maduro’s regime from the global financial system, according to two of the people. The Verona-based printer was later acquired by Bain.
Venezuela’s economy is in its seventh straight year of recession and forecast to shrink another 20 per cent this year due to the coronavirus lockdown and the collapse of oil revenue. Previous attempts to bring stability to the currency by cutting off zeros and printing new bills have failed.
Authorities have turned a blind eye to a greater number of transactions being carried out in U.S. dollars, with Ecoanalitica estimating that about 60 per cent of all purchases are now done using greenbacks.
Venezuela has been suffering from hyperinflation since 2017, decimating the ability of most Venezuelans to purchase even the most essential goods — much less save.
The average family requires more than 100 times the official minimum wage to meet its basic needs.