Venezuela Plans Shift in its Currency, Prompting Mobile Payments Fears

May 31, 2024         By: Steven Anderson

Remember when India changed up its currency, effectively demonetizing most of its money? Remember the frenzy that followed? Currency revaluations are never an easy thing—unless they’re done gradually through inflation, and that becomes more a minor, creeping nuisance than a real problem—and Venezuela is about to embark on one such revaluation itself.

The announcement came in March, and the process was set to go live June 4, which is the first Monday of the month. Nicolas Maduro, Venezuela’s president, noted that the currency revaluation was set to “…remove three zeros from the hyperinflated economy’s prices.” Given that inflation in Venezuela is running about 14,000 percent annually, this is a genuine concern.

Pictures have emerged around the new bills, with the central bank hitting Twitter with pictures. Current word says that the branch banks in Venezuela not only don’t have any of this cash themselves, but they’ve had no opportunity to set up cash machines to work with them.

Some believe that the government is setting up Venezuela for another round of late-2016-style chaos in which the country pulled an India of its own and devalued the largest-denomination bill. That particular chaos included “…long lines, looting, and protests that led to at least three deaths.”

Some stores and bus services have stopped accepting cash payments, believing that the currency may prove worthless when June 4 hits. That’s got many turning to mobile payments, but with banking and payments systems already considered overloaded, some believe websites may crash as a result, leaving regular users in a bind with cash no one will take and payments systems no one can use.

Mobile payments can be a good alternative in events like these, but the systems have to be in place and working before the value can be derived from them. We saw as much with India’s devaluation, and we’re seeing it again here. It’s a stupid idea to just pull something out of a market without having its replacement up and running first; even if users don’t much like the replacement they can still put it to work, if it has to be used.

Maduro’s latest economic voodoo may or may not work—only time will tell—but for right now, it looks like a system set up to fail.