Venezuela’s latest currency redenomination: Purely superficial?

 

Looking ahead, our panel of analysts expects inflationary pressures to ease notably this year and in 2022, but to remain excruciatingly high nonetheless. Moreover, without a concrete economic stabilization plan in place amid ongoing geopolitical tensions with the West, the Digital Bolívar is seen losing its value against the USD at a rapid pace.

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Commenting on the latest currency move, analysts at the EIU noted:

“Although the measure is ostensibly part of the BCV’s pivot to digitization, the authorities have confirmed that they will still continue to issue fiat money. In our view, the redenomination is largely cosmetic; although it will help to simplify bookkeeping for a while, it will not fundamentally engender confidence in the Bolivar, and large-scale debt monetization will continue to erode the value of the currency. Consequently, local adoption of the US dollar will continue apace.”

Moreover, reflecting on the current trend and short-term outlook for inflation, Alberto J. Rojas at Credit Suisse said:

“High inflation will likely persist, despite the government’s decision to remove six zeroes from the bolivar starting in October. We have long noted that Bolivar inflation no longer has the impact in real activity it had in the past. However, as a reference, we are revising our 2021 year-end annual headline inflation forecast to 915%, from a previous estimate of 1,950%; for year-end 2022, our inflation forecast is of about 800%. We think that a reduction in scarcity levels might be aiding in decelerating price pressures at the margin.”

 

 

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