EDITOR NOTE: Venezuela’s President, Nicolas Maduro, had been demonizing the US dollar for years. As you might know, Venezuela is a socialist country whose hyperinflation rate of 5,400% has rendered their local currency, the Bolivar, worthless. Now, President Maduro is changing his tune, looking to tame his country’s hyperinflationary woes by introducing the US dollar into their financial system. As more developed nations are looking to de-dollarize, Venezuela may find its economic salvation through dollarizing its entire monetary system.
(Bloomberg) -- Venezuelan central bank officials have summoned executives from a handful of local financial firms to discuss plans to create a clearing and settlement system in U.S. dollars starting next year, according to five people with knowledge of the matter.
The move would be an important step as a means to formalize transactions in dollars in Venezuela’s banking system, the people said, declining to be named since the proposal hasn’t been made public. It would also allow banks to offer loans in dollars, which could boost a moribund local credit market, two of the people said. The local bolivar currency would co-exist in the banking system.
At least five private banks have met with central bank officials in recent weeks, one of the people said. Several of Venezuela’s banks already offer services to clients holding dollars, but they are limited to cash deposits, withdrawals and wires between accounts from the same bank.
The new system would turn the central bank into a dollar clearinghouse, allowing instant transactions between banks and businesses within the country. Last month, the central bank banned local lenders from setting up a system of their own without government oversight.
A press official for Venezuela’s central bank didn’t respond to requests for comment.
Venezuelans now use greenbacks to pay for everything from candy bars to shoes, often relying on money transfer services like Zelle due to a shortage of cash. More than 60% of commercial transactions are made in foreign currency, according to local financial analysis firm Ecoanalitica. Annual inflation is running at 5,400%, according to Bloomberg’s Cafe Con Leche Index, which tracks the cost of a cup of coffee in Caracas.
While Venezuela’s socialist government used to demonize the U.S. currency, President Nicolas Maduro publicly endorsed dollarization last year as a means to tame hyperinflation and help stabilize a crumbling economy. But he has stopped short of adopting the dollar formally.
The bolivar has become worthless following seven years of economic contraction and failed policies. A recent plan to print a new 100,000 bolivar bill would make it the highest denomination yet, but still only worth $0.15.
Originally posted on Yahoo! Finance