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  • View of La Hoyada Market, Caracas, Venezuela, February 2020.

    View of La Hoyada Market, Caracas, Venezuela, February 2020. | Photo: Twitter/ @Jefferson_Diaz

Published 25 November 2020
Opinion

Due to exchange rate instability, Venezuela is going through a spontaneous dollarization process as its citizens carry out transactions in dollars.

Venezuela’s Vice President Delcy Rodriguez announced on Wednesday that the government of President Nicolas Maduro will implement policies to encourage the use of the national currency, which has devalued almost 78 percent over the last month, according to data from the Central Bank.

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Among these policies is the expansion of the daily amounts allowed for bank transfers that are made through digital platforms.

Currently, the limit for these electronic transactions is around 100 million bolivars, that is, 100 U.S. dollars according to the official exchange rate. The Superintendency of Banks will also increase the limits of daily payments with debit cards.

To combat currency speculators who carry out transactions within the formal financial system, the Venezuelan government will tax hard-currency transactions between clients of private banks.

"Foreign currency transactions within a financial entity will pay a transaction tax," Rodriguez said, referring tacitly to what happens inside private banks, which have been hoarding dollars in their vaults so that their corporate clients can carry out transactions with each other, as reported by Reuters.

The Venezuelan national currency has undergone two currency reconversion processes over the last 12 years. In 2008, the bolivar lost three zeros and became the “strong bolivar”; later, this currency was renamed the "sovereign bolivar" after the authorities removed another five zeros in 2018.

Because of the instability of the exchange rate, Venezuela is going through a "spontaneous" dollarization process as its citizens carry out transactions in dollars and calculate the prices of goods in dollars.

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