With a dizzying hyperinflation headed for 1,000,000 percent by the end of the year, the fumbling government of Venezuelan dictator Nicolas Maduro decided to make things far worse by devaluing the bolivar by 95% and pegging it to a sham cryptocurrency created by the government.
Maduro announced a series of draconian and desperate "economic reforms" over the weekend in another bumbling attempt to resuscitate the country's moribund economy. The steps, which took effect Monday (Aug. 20), consist of:
*Devaluing the bolivar by a fantastic 95%, and renaming this almost worthless currency the "sovereign bolivar."
* Pegging the sovereign bolivar's exchange rate against the U.S. dollar at 6,000,000 to $ 1 from the old bolivar's 250,000 per dollar.
* Pegging the sovereign bolivar to the government-created sham cryptocurrency, the petro. The petro is valued by the Venezuelan government at some $60 or 3,600 sovereign bolivars.
* The new sovereign bolivar will also be re-denominated, which will remove five zeros from its unit measurement.
In addition to these eye-popping moves, Maduro also announced a mammoth 3,000 percent increase to the minimum wage, which won't mean much considering the country's crippling hyperinflation. Based on the sovereign bolivar, an ordinary worker earning the minimum wage will receive some 1,800 sovereign bolivars a month instead of 1.8 million old bolivars. The new minimum wage will be worth only $30 per month.
The government will also cancel some gasoline subsidies and raise the value-added tax by around four percent. It claims these moves will save around $10 billion per year.
It isn't clear how Maduro's government plans to implement these severe financial changes, which angry Venezuelans mocked under the Twitter hashtag #BlackFriday. The petro is being pilloried as a fake cryptocurrency by traditional bankers and by cryptocurrency experts because no one's certain how it works. U.S. sanctions have banned use of the petro in any transaction.
A report from the International Monetary Fund (IMF) released in July said Venezuela's economy is expected to shrink by 18% in 2018. HYperinflation is forecast to reach 1,000,000 percent.
Western financial experts said these desperate measures won't provide a quick fix for the sagging economy. Inflation will climb even faster under the devaluation. Maduro, a former bus driver, defended his latest measures.
"I want the country to recover and I have the formula. Trust me," said Maduro in a nighttime broadcast on state television.
One Venezuelan economist, Addrubal Oliveros, said Maduro's aggressive devaluation and monetary largesse due to salaries and bonuses will lead to a much more aggressive stage of hyperinflation. He called Maduro's bitter pills the worst of both worlds.
