It is not the sort of quantitative easing approach you will read about in any economic textbooks, but Venezuelan President Nicolás Maduro has apparently found an innovative way to halt his country’s slide into hyperinflation.
Over the weekend, Maduro abruptly outlawed the 100-bolivar bank note, the largest denomination of the country’s currency, giving Venezuelans until Thursday to deposit or exchange the bills before they are rendered worthless. Calling the bills instruments of an “economic coup” to destabilize his government, he said the move would strike a blow at “international mafias” that have been hoarding the cash.
And with that wave of his wand, Venezuela’s long-suffering currency stopped sinking Tuesday, and it had regained nearly 17 percent of its black market value against the dollar by late afternoon.
Not that it was cause for celebration in Venezuela. Lines stretched for hours outside banks on Tuesday, as Venezuelans arrived with stacks of 100-bolivar notes in backpacks and shopping bags, rushing to turn them in before Thursday’s deadline.
Many businesses stopped accepting the bills immediately, and families that have been saving up cash for holiday purchases scrambled to deposit or exchange the bills to avoid losing everything.
The rush to the banks brought a rare surge in the value of Venezuela's currency after its worst month of depreciation. Annual inflation in Venezuela is the highest in the world, and the bolivar’s black market rate plunged 60 percent in November alone.
By Sunday, when Maduro made his surprise announcement, it was trading against the dollar at more than 4,200 to 1.
Debit cards are widely used in Venezuela, and Maduro’s ban on the 100-bolivar bank note will have no bearing on individual bank account balances. But many poorer Venezuelans lack formal accounts and keep their money in paper currency.
Maduro also has ordered the busy border crossings with Colombia closed during the 72-hour exchange period to prevent the alleged currency manipulators from sneaking their expiring bills back into Venezuela.
It’s likely that the currency rebound will be little more than a short-term blip in oil-dependent Venezuela’s painful and prolonged economic decline. The government is preparing to release new, high-denomination bank notes on Thursday, and the largest bill will now be worth 20,000 bolivars.
Whatever its real intentions, the government isn’t justifying the move as a carefully reasoned act of fiscal prudence. Instead, the country’s top law enforcement official, Nestor Reverol, claims that a group of nefarious, unnamed nongovernmental organizations have been working to destabilize Venezuela’s economy on behalf of the U.S. Treasury.
Reverol said Venezuelan investigators found that the groups have been buying up Venezuela’s 100-bolivar bank notes at a furious pace. The bills are then taken into Colombia, where they are transported to Europe and Asia and bought for roughly a dollar apiece by U.S. agents. The goal, Reverol said, was to “suffocate” Venezuela's economy by taking its currency out of circulation.
The U.S. government has not responded to the allegations.
“It’s part of the economic war against our country,” Reverol said, displaying photos of what he said were giant piles of 100-bolivar notes that had been confiscated in Europe. “This is terrorism,” said Reverol, one of several top Venezuelan officials wanted on drug trafficking charges in the United States.
Venezuelan authorities said they have taken more than 100 currency traders into custody along the border, while seizing 104 million bolivars in cash.
Chronic financial turbulence has left many Venezuelan businesses reeling, bankrupt or in constant fear of government raids.
Last week, Venezuelan troops confiscated nearly four million toys from a private company that it said was planning to sell its products at black market prices. The government promised to redistribute the dolls and games to poor children in time for the holidays.