Venezuela is set to launch its government-backed digital currency in October as the bolivar gets a makeover

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Venezuela is set to launch its government-backed digital currency in October as the bolivar gets a makeover
Representative imageCNBC
  • Venezuela's local currency, the bolivar, is getting redenominated in October.
  • Banco de Venezuela will also launch the country’s central bank digital currency (CBDC) as a part of the country's monetary makeover.
  • The digital bolivar will use an SMS-based exchange system to facilitate payments and transfers between users.
  • For a country facing hyperinflation, a centralised digital currency could be a temporary solution for its cash issuance problems.
Venezuela is giving its national currency, the bolivar, a makeover in October. In addition to redenomination, the country’s central bank plans to launch its central bank digital currency (CBDC) — the digital bolivar.

The Latin American country known for its oil reserves plans to launch a new one bolivar coin, bank notes with denominations between 5 to 100 Bs. The digital bolivar will be circulated in the economy too.

According to the bank’s announcement today, the digital bolivar will use an SMS-based system for making payments and transfers between users.

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The bolivar will not be worth any more or any less, in order to facilitate its use, it is being taken to a simpler monetary scale.

Statement by Banco de Venezuela

The country’s new 100 bolivar note is equivalent to 100,000,000 of its current bolivar. This is the third time the country’s government has made an adjustment to its currency over the past 12-13 years. Late President Hugo Chavez had made a 1000-to-one change in 2008, while his successor Nicolas Maduro made a 100000-to-one change in 2018. This time, the adjustment is a million-to-one.

The country’s new 100 bolivar note is equivalent to 100,000,000 of its current bolivar. This is the third time the country’s government has made an adjustment to its currency over the past 12-13 years. Late President Hugo Chavez had made a 1000-to-one change in 2008, while his successor Nicolas Maduro made a 100000-to-one change in 2018. This time, the adjustment is a million-to-one.

CBDC is part of modernizing economy


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The CBDC is part of Maduro’s plans to modernize the country’s economy. In February, he said that the digital bolivar was part of his plans to completely digitize the country’s economy by the end of the year. He said Venezuela’s economy had been 77% digitized during 2020.

He was also the man behind a crypto token called Petro — a digital currency Maduro claims is backed by Venezuela’s rich oil reserves — launched in 2018. However, the experiment was far from successful. The digital currency was shunned as a joke despite his best efforts to force the locals to use it.

The redenomination comes in the face of hyperinflation. According to the central bank, the country saw 3000% inflation in 2020 and 9500% during 2019. Inflation is so bad that the everyday economy now works mainly in dollars. Many stores have been listing prices in the US dollar rather than in bolivar.
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The high levels of inflation mean that there isn’t enough cash to go around. The introduction of a CBDC could be a band-aid to Venezuela’s cash issuance problems.

Who else is considering a CBDC?



Venezuela is amongst the first countries to launch a state-run digital currency, but it certainly won’t be the last. Countries like the United States (US), India, United Kingdom, Australia, Brazil and more have been exploring the option. While the UK, US, Russia, Canada and more are in advanced stages of developing their CBDCs, countries like India, Australia, Brazil, Chile, and many others are only considering it.
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According to a report by an American think tank, the Atlantic Council, 19 countries have already fully launched their CBDC. This includes countries like China, Eastern Carribean and Jamaica that are conducting pilot programs. Others like Bahama have completed the process and are already using CBDCs in their economies. 14 countries are running pilot programs, while 5 have launched them already.

Cambodia, for instance, is looking to wean its economy off the dollar with Bakong, its homegrown CBDC. Since the launch of its digital currency in October last year, it has been able to amass 5.9 million users and saw 1.4 million transactions worth $500 million during the first half of 2021.

For a more in-depth discussion, come on over to Business Insider Cryptosphere — a forum where users can deep dive into all things crypto, engage in interesting discussions and stay ahead of the curve.
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