Nicolas Maduro delivers a State of the Union address to the National Assembly in Caracas on January 12.
Photographer: Carlos Becerra / Bloomberg
Photographer: Carlos Becerra / Bloomberg
Venezuela is expanding the use of foreign currency bank accounts, the last step towards dollarizing the economy in crisis.
“The opening of bank accounts at all levels in convertible currencies, in dollars, is being authorized,” said President Nicolas Maduro during his annual speech to the nation.
As Venezuela’s economy shrank for the seventh consecutive year in 2020, the government turned a blind eye to the growing number of dollar transactions and also loosened the controls that were strangling private companies. More than $ 2 billion in remittances have come in and there is now plenty of goods on offer for those with access to foreign currency.
Local banks can now offer US dollar accounts, but transactions are limited due to the lack of a clearing system that allows electronic funds to be transferred between banks. Maduro’s proposal would allow the widespread use of debit cards linked to these accounts.
Venezuelans will now be able to pay debit cards in bolivars from their dollar bills, Maduro said.
Dollarization of the economy, said Maduro, is “a necessary and beneficial outlet for economic life”.
While Venezuelans starve to death, the dollar’s luxurious economy grows in Caracas
Given the estimated inflation of 1,858% in the last 12 months, the bolívar’s notes lost value in record time, increasing the need for digital payments and hard currency to facilitate transactions.
The government claims that the vast majority of local transactions take place in bolivars, although the local economic consultancy Econoanalitica estimates that 66% of transactions are already conducted in US dollars. The government is looking for ways to tax the growing dollar economy, Maduro said.
“The government is interested in preserving the bolívar and, at the same time, allowing the dollar to circulate, as long as it does not replace or repudiate the bolívar,” said economist Tamara Herrera, head of consultancy Sintesis Financiera.
The president also proposed the use of an offline digital payment system for public transport. The Caracas metro often stops charging passengers due to lack of money.
Maduro said that in the past six years Venezuela has lost 99% of its foreign currency earnings. He set the oil production target for 2021 in 1.5 million barrels per day, 500,000 barrels per day below the country’s 2020 target.
– With the help of Fabiola Zerpa
(Updates with basic information starting in the third paragraph.)