Central Bank Digital Currencies [CBDCs] are becoming popular among many governments, with many countries actively developing their own. Venezuela, for example, is making headlines today after the country’s Central Bank announced plans to launch its own CBDC by October of this year. The Venezuelan Vice President of Communication first revealed this on Twitter.
The announcement also stated that a monetary redenomination will take place, removing six zeros from the Venezuelan currency Bolivar. The digital Bolivar will be accompanied by a new 1-bolivar coin, as well as banknotes in denominations ranging from 5 Bs. to 100 Bs.
To enable transfers and payments between users, the CBDC will be supported by an SMS-based exchange system. The bank also stated that none of these measures will affect the current value of the Bolivar.
“The bolivar will not be worth more or less; it is being reduced to a simpler monetary scale to facilitate its use.”
It’s not the first time.
This is not the country’s first foray into digital assets. The government launched Petro, an oil-backed cryptocurrency, in 2018. This was done to supplement the falling Bolivar and to avoid sanctions imposed by the United States. This move, however, failed because, rather than being decentralized, the “crypto” was controlled by the government.
The aforementioned development also aims to combat Venezuela’s rising inflation. According to some estimates, the same has increased by 2,575 percent in the last year alone. In fact, Venezuela removed five zeroes from its currency in 2018 after inflation reached 1.8 million percent.
In such a scenario, Venezuelans are increasingly turning to cryptocurrencies as a hedge, in addition to the US dollar. Venezuela had the world’s third highest level of daily crypto-use in May. Citizens were using Bitcoin and other altcoins not only as a store of value, but also as a payment method.
Such sentiments are common throughout the region. A bill currently before the Uruguayan Senate, for example, seeks to legalize the use of cryptocurrency as a form of payment in the country. Despite some protests, El Salvador is set to officially convert Bitcoin into legal tender on September 1st, despite the bill’s limited scope.