Venezuela lops five zeros off its currency in bid to tackle hyperinflation

Critics say measure will only make conditions worse

Venezuela is launching a new currency that slashes five zeros off the country’s fast-depreciating bills, in a bid to tackle the country’s accelerating hyperinflation.

President Nicolas Maduro has also announced a 3,000 per cent hike in the minimum wage and a rise in the price of fuel to international levels, in changes that will be implemented from Monday.

But critics say the measures will only make conditions worse in Venezuela, which has already seen hyperinflation at more than 40,000 per cent and a rapidly contracting economy.

Opposition leaders seized on tension among residents, calling for a nationwide strike and protests on Tuesday. They hope to draw masses into the streets against Mr Maduro’s socialist ruling party – something they have failed to do in over a year.

Banks will close on Monday as they prepare to release the “sovereign bolivar”. The new paper bills will have two coins and paper denominations ranging from 2 up to 500. The lowest represents the buying power of 200,000 current bolivars while the highest stands in for 50m.

The old and new currencies will remain in circulation together during a transitional period.

The government says that in September, the world’s cheapest fuel will rise to international levels to curtail rampant smuggling across borders. Mr Maduro said on Friday that the minimum wage will also soon jump dramatically.

Economists say the package of measures is likely to accelerate hyperinflation rather than address its core economic troubles, like oil production plunging to levels last seen in 1947.

Lines at a Caracas street market on Saturday were longer than normal, with people stocking up on essentials due to the uncertainty surrounding this week’s announcement. Many were frustrated by bank card readers that were slow to register or that failed altogether, forcing some to leave their goods and walk away empty handed.

“You have to be patient,” a shop worker selling grains told a growing line of customers. Many other stores remained closed, uncertain what prices to set for their goods.

Venezuela was once among Latin America‘s most prosperous nations, holding the world’s largest proven oil reserves, but a recent fall in oil prices accompanied by corruption and mismanagement under two decades of socialist rule have left the economy in a historic economic and political crisis.

Inflation this year could top 1 million per cent, according to economists at the International Monetary Fund.

Inflation has made it difficult to find paper money. The largest bill under the outgoing cash system was the 100,000 bolivar note, equal to less than 3 cents on the commonly used black market exchange rate. A cup of coffee costs more than 2 million bolivars.

The government made a similar attempt to tackle inflation in 2008, when then-president Hugo Chavez issued new currency that eliminated three zeros.

Mr Maduro also announced on Friday a 3,000 per cent leap in the minimum wage, bringing it up to around £24 at the widely used black market rate. It’s unclear when the change will start.

Adding to confusion, Mr Maduro said he wants to peg wages, prices and pensions to the petro – a cryptocurrency announced in February, but which has yet to start circulating. He said one petro would equal $60 (£47), with the goal of moving towards a single floating exchange rate in the future tied to the digital currency.

“The next few days will be very confusing for both consumers and the private sector, especially commercial retailers,” said Asdrubal Oliveros, director of Caracas-based Ecoanalitica. “It’s a chaotic scenario.”

A coalition of opposition leaders and union officials said on Sunday they are calling for a strike and protest.

“The measures announced on Friday are not any economic recovery plan for the country,” opposition leader Andres Velasquez said. “On the contrary, they represent more hunger, more ruin, more poverty, more suffering, more pain, more inflation, more deterioration of the economy.”

Business owners say they fear the sudden wage hike would make them unable to pay employees without sharply increasing prices, despite Mr Maduro’s call to help small and mid-sized businesses for the first three months.

Jesus Pacheco, who employs six people at his butcher shop in Caracas, said on Sunday that he may have no option but to let go some of his employees to stay in business. He expects the slaughterhouse prices will go up for him.

“You’re going to buy products, and they’re more expensive,” Mr Pacheco said. “We are going to have to fire employees. What else can you do?”

Additional reporting by AP