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Venezuela is embarking this week on a major economic overhaul-- the biggest in the 5 years that Nicolás Maduro has been president of the country. Why? Well, put simply, because of hyperinflation. Inflation has been a problem in Venezuela for years. But it's really taken off since the end of last year. Since then, prices have been almost doubling every month for the past 9 months. The annual inflation rate is now running at around 80,000%. By some measures, that's the highest in Latin American history. And economists in Caracas expect it to get worse. They say it could reach 300,000%, 400,000% this year.
So what's the government doing about it? Well, Nicolás Maduro has announced a series of drastic measures. The first, introduced this week, is to lop 5 zeros off the currency, the bolívar. So a whole load of new banknotes have been issued. The biggest of those banknotes is the VES 500 note. That would be worth 50 million old bolívars. That's still only around $8.
Now, this should make things slightly easier for Venezuelans in practical terms. They won't have to carry big bags of cash around with them in the way that they have in the past. But as economists have pointed out, lopping 5 zeros off the currency won't actually halt hyperinflation. And just to confuse matters, the new notes and the old notes will actually run in parallel for a while until the old notes are finally phased out.
Mr Maduro says that the new bolívar will be pegged to the petro, a state-run cryptocurrency which he launched earlier this year. He says there will be 3,600 new bolívars to the petro, and the petro will be worth $60. Now, if you do the maths, that works out as a currency devaluation of 95% or 96%.
Many economists say this is really just smoke and mirrors, because the petro doesn't really exist in any recognised form. It isn't traded on any recognised platform. The government can issue it at will. As one analyst said last week, Mr Maduro has chosen to peg the new bolívar to the petro, but he might as well have chosen to peg it to unicorns. It's that fanciful.