Venezuela is expanding the use of foreign currency bank accounts, the latest step toward the dollarization of the crisis-stricken economy.
By Alex Vasquez and Nicolle Yapur / Bloomberg
“The opening of bank accounts at all levels in convertible currencies, in dollars, is being authorized,” President Nicolas Maduro said during his yearly address to the nation.
As Venezuela’s economy shrank for a seventh straight year in 2020, the government turned a blind eye to the growing number of dollar transactions, and also loosened controls that were throttling private businesses. More than $2 billion in remittances have flowed in, and there is now an abundance of goods on offer for those with access to foreign currency.
Local banks are already allowed to offer accounts in U.S. dollars, but transactions are limited due to the lack of a clearing system that would allow wire transfer of funds between banks. Maduro’s proposal would allow the widespread use of debit cards connected to these accounts.
Venezuelans will now be able to pay in bolivars with debit cards from their dollar accounts, Maduro said.
The dollarization of the economy, Maduro said, is “a necessary and beneficial escape valve for economic life.”
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Given inflation estimated at 1,858% in the last 12 months, bolivar notes become worthless in record time, increasing the need for digital payments and hard currency to facilitate transactions.
The government says that the vast majority of local transactions take place in bolivars, though local economic consultancy Econoanalitica estimates that 66% of transactions are already taking place in U.S. dollars. The government is seeking ways to tax the growing dollar economy, Maduro said.
“The government is interested in preserving the bolivar while allowing the dollar to circulate as long as that doesn’t replace or cause the repudiation of the bolivar,” said economist Tamara Herrera, head of consulting firm Sintesis Financiera.
The president also proposed to use a digital off-line payment system for public transportation. The Caracas subway routinely stops charging passengers due to cash shortages.
Maduro said that in the last six years Venezuela lost 99% of its foreign currency revenues. He set the 2021 oil production goal at 1.5 million barrels a day, 500,000 barrels a day lower than the country’s 2020 goal.