The country is currently experiencing an unprecedented economic crisis – triggered by the 2014-2015 drop in oil prices – which translates into skyrocketing inflation and dramatic food and cashMoney in physical form such as banknotes and coins. More shortages. The government attempted to address the situation with the issuance of a new banknoteA banknote (or ‘bill’ as it is often referred to in the US) is a type of negotiable promissory note, issued by a bank or other licensed authority, payable to the bearer on demand. More series, but its efforts have not been fruitful for the moment.
The cash shortage is making life extremely difficult for the Venezuelan population, already affected by the remarkable inflation that made their banknotes completely worthless. Cash withdrawals at ATMs are limited to 10,000 bolivars per person per day, representing less than USD $1. What’s more, cash machines are systematically empty, forcing people to queue for hours at banks only to get a maximum of 20,000 bolivars – a sum that is far from covering daily necessities. One of the adverse effects of this shortage has been the emergence of a black market, where banknotes are exchanged in return for a 15-30% commission.
Furthermore, last December, Nicolas Maduro announced the withdrawal of the highest banknote – the 100 bolivar. This move caused a social upheaval, forcing the president to backtrack on his initial decision. In January 2017, the central bank issued a new series of banknotesSee Family of banknotes. More consisting of 6 denominations: 500, 1’000, 2’000, 5’000, 10’000 and 20’000 bolivars in an effort to curb inflation. Yet, the central bank is still unable to provide commercial banks with sufficient cash reserves, forcing these to impose restrictions directly on consumers.
Henkel García – Director at Econométrica, a Venezuelan firm – explained that only 7.5% of the cash in circulationThe value (or number of units) of the banknotes and coins in circulation within an economy. Cash in circulation is included in the M1 monetary aggregate and comprises only the banknotes and coins in circulation outside the Monetary Financial Institutions (MFI), as stated in the consolidated balance sheet of the MFIs, which means that the cash issued and held by the MFIs has been subtracted (“cash reserves”). Cash in circulation does not include the balance of the central bank’s own banknot... More is available to consumers. The new series should result in a 66% rise in the number of circulating banknotes, a figure that remains insufficient to address the cash shortage, García says. Cash withdrawal limitations have also encouraged consumers to stop deposing cash at banks, leading the loan system to a standstill.
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