In a shocking announcement, President Nicolás Maduro has ordered that the highest bill in circulation, the 100 Bolivar note ($0.025), be taken off the streets in less than 72 hours. The President argued that the banknotes are being smuggled out of the country by local mafias and powerful economic “enemies”.
Venezuela’s president has been denouncing the “mafias”, which –according to him and his staff–have been extracting currency bills outside the country in order to purchase subsidized Venezuelan goods and resell them in Colombia at huge markup prices. Maduro said:
There has been a scam involving the smuggling of one hundred Bolivar notes on the border with Colombia. We have tried the diplomatic way to deal with this problem, but there are huge mafias.
In the last year, the South American country has been experiencing a dramatic shortage of cash due to the high levels of inflation and currency devaluation. The government has been adamant about replacing the current banknotes with higher ones, as they believe not doing so will be proof of economic mismanagement.
The stubbornness of President Maduro has made Venezuelan lives harder. Citizens stand for hours in long queues in front of ATMs. On the border, smugglers pay a 20% premium to get their hands on 100 Bolivar notes. Some business owners have resorted to weighing the bills instead of counting them. Even “mom and pop” stores with access to point of sales have made a business around cash withdrawals.
Is Venezuela Demonetizing?
The headlines have suggested a similar situation to India, which removed their highest denomination bill. In Venezuela’s case, however, the government is merely recalling the current bills to introduce bills that are 200-times larger. The chaos that will ensue after this measure shouldn’t go unnoticed, as Venezuelans will have 72 hours to get rid of the banknotes, and the bottleneck will be a perfect opportunity to punish the population–Venezuelans who deposit the equivalent of $150 will have to state the origin of the funds.
With the new measure, Maduro hopes that the $100m in Venezuelan banknotes outside the country, mainly in Colombia, will be rendered worthless. The President asked the army to close up all borders, airports, and roads to neighboring countries.