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Reconversion in Venezuela, economic development or failure?

Reconversion in Venezuela, economic development or failure?

Sabela Bello and Gonzalo D. Loeda / EFE

It is not new for the government and opposition in Venezuela to use every pretext to confront any issue they put on the table and take it to unexpected extremes. Now it’s time to talk about remittances, which the executive sells as a panacea for economic recovery, while for anti-Chávismo this is yet another failure.

Reality is stubborn and shows that neither one nor the other is real. Here are some clues to the usefulness (or lack thereof) of remittances in Venezuela, which already has two similar experiences, the previous ones providing reasons and invalidating them.

1.- Precedents

This coup, which will take effect on October 1, is the third so far in the 21st century, and thus under the governments of the so-called Bolivarian Revolution.

The first, which eliminated three zeros from the currency, was announced in 2007 and has been in place since January 1, 2008. Without the urgency caused by the hyperinflation that Venezuela has experienced since November 2017, the operation was planned and started after a long period of civic teaching for Venezuelans to recognize Bolivar Newborn Fuerte at the time.

In 2018, with Nicolás Maduro as president and with Venezuela participating in a hyperinflationary cycle, a second reconversion was launched, which initially would remove three more zeros, but eventually erase five. The currency was renamed Sovereign Bolivar.

2.- Its effects

The first reconversions sought to give “greater efficiency to the country’s payments system,” as well as “enhance confidence in the national currency,” according to then-President Hugo Chávez, goals unfulfilled since the “fortress” lasted only a decade in the pockets of Venezuelans.

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In 2018, Nicolás Maduro announced that the sovereign bolivar would represent “a new monetary system to stabilize and radically change the monetary and financial life of the country.”

These goals were further excluded from reality: hyperinflation did not stop, the purchasing power of the country was destroyed, and the king witnessed how, under his empire, a mass emigration of Venezuelans began in search of a better future for his country.

3.- Digitization or excuse?

The digitization of the bolivar, which the government now presents as something new, has been a reality for several years. The shortage of paper money, as a result of hyperinflation, has led to the forced use of platforms such as “mobile payments” or instant transfers of local currency payment from a loaf of bread to utility bills.

Although it is not known, at the present time, what news will bring digitization that has been so much publicized, it will not be, at least in principle, a fact more widespread than it is today – that cash is hardly used because of its low value Since then, the announcement of the launch of a single bolivar coin and bills of 5, 10, 20, 50 and 100 heralds more physical money and fewer digital payments.

In addition, the new Bolivar, despite the fact that its creation is supported by BCV in the digitization of the economy, faces poor Internet connectivity and constant power outages, which reduce the possibilities of carrying out digital operations, a problem already known and that makes it impossible, in many occasions, even the use of data devices to pay with a shared card.

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4.- Coexistence with the dollar

Despite the fact that the government is promoting its new strategy as a way of unifying the national currency, it has not made clear how it will ensure that it retains its initial value, something that can only be achieved by getting out of the current hyperinflation scenario so that the bolivar can. He regains his lost strength years ago.

If not, the currency that will be standardized – and more so – will be the US currency that President Nicolas Maduro baptized as a “criminal dollar” and, before that, inevitably ended up capitulating as a lifeline for the country’s economy. Today, about 90% of business operations are carried out in dollars.

And although the future remains to be seen, the digital bolivar will have to take its first steps in coexistence with the dollar, which, except for the economic miracle of the third monetary transition, is ripe for survival.

5. – In search of the end of inflation

For the new currency to be successfully generated, hyperinflation, which has been fading for months, must end.

This will only be achieved, according to economists, if the severe fiscal imbalance that the government solves with monetary issuance is stopped.

One of the keys to this is the state’s increase in its income, and thus stop financing itself with the central bank, in addition to stopping the injection of inorganic funds into the economy.