A major currency overhaul in Venezuela is set to come into effect Monday, with critics fearful it will make worse hyperinflation in the crisis-stricken country.
In a radical attempt to end economic turmoil in the oil-rich, but cash-poor South American nation, Venezuelan President Nicolas Maduro announced Friday that his socialist administration would issue new banknotes after lopping five zeroes off the beleaguered bolivar.
The move effectively devalues Venezuela's currency by around 96%, with the bolivar set to go from about 285,000 per U.S. dollar to six million. Other measures announced in Maduro's speech to the nation last week included highly-subsidized gas prices, a higher corporate tax rate and a massive minimum wage increase.
Economists say that by introducing the proposed measures, Maduro's administration is only likely to make matters worse. Caracas' cash-strapped government has recently defaulted on its bondholders and is currently facing the prospect of further sanctions from the Trump Administration.
Reports from Venezuela say the revamped currency — set to be named the sovereign bolivar in order to distinguish it from the strong bolivar — will also be pegged to the country's widely discredited petro cryptocurrency.
The Venezuelan economy is heavily dependent on oil exports which once made the country very rich. It's said to have the largest proven oil reserves in the world.
Oil leaving the country accounts for about 90% of its total exports. When oil prices began to collapse in 2014, the cash received by Caracas dropped significantly — bringing new economic challenges. To be sure, the International Monetary Fund (IMF) has predicted inflation in the country will exceed 1-million% this year.
