Venezuela city issues own currency to combat national cash crisis

March 18, 2018  00H:21  GMT/UTC/ZULU TIME

by Renee Celeste and Biodun Iginla, BBC News and Reuters, SAN CRISTOBAL, Venezuela

SAN CRISTOBAL, Venezuela - A western Venezuelan city began to issue its own currency this week to alleviate the hyper-inflationary country’s cash crisis.

The “Elorza” currency, with bills featuring the face of local independence leader Jose Andres Elorza, will be valid in the city of Elorza, near Venezuela’s border with Colombia.

The bills are being sold in the municipality’s offices to ensure that thousands of tourists and residents can trade, said mayor Solfreddy Solorzano, a member of the ruling Socialist Party.

Venezuela’s national currency, the bolivar, has plummeted in recent years amid a crippling economic crisis. Prices are doubling nearly every month and basics such as food and medicine are nearly unavailable.

On top of that, there are shortages of cash itself making basic transactions impossible.

“People do not have bolivars to spend, so we created two denominations of notes,” Solorzano said, adding that some 2 billion bolivars’ worth of “Elorza” had been purchased — roughly $9,000 at the black market exchange rate.

Many in Venezuela earn the equivalent of just a dollar or two a month.

In December, a socialist collective in one of Caracas’ emblematic hilltop slums launched its own currency, the panal, to try to overcome cash shortages. One note features the face of late president Hugo Chavez.

The currency could be exchanged for rice that members of the community grew and harvested.

In Elorza, the mayor’s office receives bolivars by bank transfer or debit card payment and, after discounting an 8 percent commission, gives “Elorza” in exchange.

People will be able to return the tickets to the mayor’s office and claim a bolivar-denominated refund.

President Nicolas Maduro blames the country’s crisis on an “economic war” being waged by Washington and the opposition, aimed at toppling his government. Critics blame strict currency and price controls and rapid money-printing.

The central bank has increased the total amount of currency in circulation by more than 50 percent in the last month alone, though cash-printing has not kept up.

Maduro says smugglers are taking Venezuelan bolivar notes over to Colombia.

Venezuela to launch oil-backed cryptocurrency

DECEMBER 4, 2017  07H:47  GMT/UTC/ZULU TIME

by Enrique Krause and Biodun Iginla, BBC News and Reuters, Caracas

CARACAS - Venezuelan President Nicolas Maduro looked to the world of digital currency to circumvent U.S.-led financial sanctions, announcing on Sunday the launch of the “petro” backed by oil reserves to shore up a collapsed economy.

Venezuela's President Nicolas Maduro speaks during his weekly radio and TV broadcast "Los Domingos con Maduro" (The Sundays with Maduro) in Caracas, Venezuela, December 3, 2017. Miraflores Palace/Handout via REUTERS

The leftist leader offered few specifics about the currency launch or how the struggling OPEC member would pull off such a feat, but he declared to cheers that “the 21st century has arrived!”

“Venezuela will create a cryptocurrency,” backed by oil, gas, gold and diamond reserves, Maduro said in his regular Sunday televised broadcast, a five-hour showcase of Christmas songs and dancing.

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The petro, he said, would help Venezuela “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade.”

Opposition leaders derided the announcement, which they said needed congressional approval, and some cast doubt on whether the digital currency would ever see the light of day in the midst of turmoil. The real currency, the bolivar, is in freefall, and the country is sorely lacking in basic needs like food and medicine.

Still, the announcement highlights how sanctions enacted this year by U.S. President Donald Trump’s administration are hurting Venezuela’s ability to move money through international banks.

Washington has levied sanctions against Venezuelan officials, PDVSA executives and the country’s debt issuance.

Sources say compliance departments are scrutinizing transactions linked to Venezuela, which has slowed some bond payments and complicated certain oil exports.

Maduro's pivot away from the U.S. dollar comes after the recent spectacular rise of bitcoin BTC=BTSP, which has been fueled by signs that the digital currency is slowly gaining traction in the mainstream investment world.

Venezuela's President Nicolas Maduro speaks during his weekly radio and TV broadcast "Los Domingos con Maduro" (The Sundays with Maduro) in Caracas, Venezuela, December 3, 2017. Miraflores Palace/Handout via REUTERS

The announcement bewildered some followers of cryptocurrencies, which typically are not backed by any government or central banks. Ironically, Venezuela’s currency controls in recent years have spurred a bitcoin fad among tech-savvy Venezuelans looking to bypass controls to obtain dollars or make internet purchases.

‘NO CREDIBILITY,’ OPPOSITION SAYS

Maduro’s government has a poor track record in monetary policy.

Currency controls and excessive money printing have led to a 57 percent depreciation of the bolivar against the dollar in the last month alone on the widely used black market. That has dragged down the monthly minimum wage to a mere $4.30.

For the millions of Venezuelans plunged into poverty and struggling to eat three meals a day, Maduro’s announcement is unlikely to bring any immediate relief.

Economists and opposition leaders say Maduro, a former bus driver and union leader, has recklessly refused to overhaul Venezuela’s controls and stem the economic meltdown.

He could now be seeking to pay bondholders and foreign creditors in the currency amid a plan to restructure the country’s major debt burden, opposition leaders said, but the plan is likely to flop.

“It’s Maduro being a clown. This has no credibility,” opposition lawmaker and economist Angel Alvarado told Reuters.

“I see no future in this,” added fellow opposition legislator Jose Guerra.

Maduro says he is trying to combat a Washington-backed conspiracy to sabotage his government and end socialism in Latin America. On Sunday he said Venezuela was facing a financial “world war.”