After India, Venezuela withdraws high value bank notes

The Dollar Business Bureau

After India, Venezuela becomes the second nation that has demonetised its currency notes and pulled out the highest-denomination banknotes from circulation. The government of Venezuela on Sunday announced to pull out the country’s highest denomination banknotes from circulation in the coming days.

Announcing the government’s move, Venezuelan President Nicolas Maduro stated that the flow of 100-bolivar bills will be stopped from Wednesday and the people will be provided 10 days to exchange these notes at the central bank. Venezuelan currency has lost most of its value in the last few years and a 100 bolivar note is now worth only 2 cents (£0.015).

During an hour-long speech, Venezuelan President said that this move was vital to fight against smuggling and to deal with the severe shortage of food and other basic things in the country. He also said that the smuggling gangs that operated in border areas will not get time to exchange the currency.

“I have decided to take out of circulation bills of 100 bolivars in the next 72 hours. We must keep beating the mafias. I have given the orders to close all land, maritime and air possibilities so those bills taken out can't be returned and they're stuck with their fraud abroad,” Maduro said.

Maduro said that the aim was to fight transnational mafia gangs which hoard the Venezuelan currency in other countries.

The gangs held over 300 billion worth of Venezuelan currency, mostly in notes of 100 denominations, he added.

According to the data presented in November by the country’s central bank, more than 6 billion 100-bolivar notes were in circulation, which makes up to 48% of all currency notes and coins in the country. However, on Thursday, the authorities are expected to bring in six new currency notes and three new coins, the highest will be worth 20,000 bolivars, which is less than $5 in value in the market.

The South American country is going through its worst economic crisis and is facing the highest inflation in the world. The nation’s economy has also been worst hit due to the sharp drop in oil prices.

Venezuela’s oil exports have been affected by low global prices which resulted in a scarcity of dollars and led to a huge increase in the prices of basic items in the country. According to the International Monetary Fund (IMF), the inflation rate in Venezuela may touch 475% by the end of this year and may reach to 1000% by 2017.

However, analysts and critics have criticised the decision by the government and said that it is likely to worsen the cash crunch in the country. They also said that it would be impossible to exchange all the 100-bolivar banknotes in circulation within the time fixed by the president.

India took a similar move to demonetise high denomination notes in early November, which has created a huge disruption in the cash flow of the country.