This nation is as close to an economic and social collapse as any country can come just short of a full-fledged revolution. The ultimate trigger has been President Maduro’s inane decision to pull the largest existing banknote out of circulation, the 100-bolivares bill, worth just about 3 US cents in the black market, which makes up very roughly half the nation’s entire cash supply. The avowed objective of the move has been to “destroy” Colombian smugglers who have been buying price-controlled food and gasoline in Venezuela, to resell these things at huge markups back home, To do this, we are told, they have been hoarding bolivars that the regime in Caracas is making invalid. In reality, though, this once-booming contraband traffic has been receding sharply in recent months, for the simple reason that Venezuelan gas pumps have been running dry and stores selling at subsidized prices have not been having much left to sell.
Their shelves have been empty because of raging inflation, which is approaching Weimar-Germany proportions. The IMF has been putting it at 476% for 2016, which is almost certainly an understatement, official controls and subventions notwithstanding. So bad is the situation, so rapidly has the bolivar been losing value that some stores have taken to weighing wads of paper money rather than counting the bills, since the stacks needed to buy even simple things have become mountainous. Prices are being upward revised almost daily, most business is being done on a cash basis and consumers are having a devil of a time raking enough of it together for even the smallest of purchases. ATMs have become mostly dysfunctional and the bolivar’s external exchange rate has dropped so steeply that importing has become all but impossible. While the official rate is still close to Bs 7 per dollar, the curb rate hovers near Bs 2,600 per USD 1.00 these days.
Last week, people were given just two days to deposit the defunct 100-bolivar banknotes into bank accounts, and ten days after that to surrender them to the Central Bank after being questioned by the secret police. Predictably, this proved to be not nearly enough time even in the cities, where banks are relatively easily found, and certainly not outside urban areas. The banks that were open could not handle the crowds and an estimated one out of three Venezuelans does now even have a bank account. In the end, the President was forced to extend the conversion deadline to January 2, but this still leaves millions of people stuck with piles of money that few merchants are prepared to accept in the knowledge that it will soon be worthless. To put it differently, less than a fortnight before Christmas Maduro with one ill-considered stroke left the nation starved for usable cash and indications are that nowhere near enough of the new higher-denomination notes of 500, 1,000, 2,000, 10,000 and 20,000 bolivares will be printed and put into circulation to prevent the severe crunch from persisting will into next year.
President Nicolas Maduro insists that what he has done was necessary to fend off a “monetary coup” and that his regime’s measures are aimed at “stabilizing” the currency. In fact, he and his predecessor Hugo Chavez have been the architects of the disaster that has been unfolding and is now playing out with business shut-downs, office closures even by doctors and lawyers, runaway inflation, food shortages, a nosediving exchange rate, popular protests, rioting, looting of stores and homes and the deployment of thousands of troops to keep popular unrest contained. The host of ills bedeviling the country is hitting particularly hard at the poorest Venezuelans, the very ones which the ruling United Socialist Party claims to defend. How long government force can keep a lid on the bubbling cauldron under these circumstances is anyone’s guess.