By Jim Wyss
Caracas: Venezuelan President Nicolas Maduro ordered the closure of his country's border with Colombia on Monday to prevent cash smuggling as his country joins the ranks of those with record hyperinflation.
Maduro said the measure was taken to stop Venezuela's currency being smuggled out of the country by criminal organisations wanting to destabilise the economy, after he announced that 100-bolivar fuerte bills - the highest currency denomination - would be taken out of circulation starting on Wednesday.
He had earlier said the withdrawal was designed to combat a calculated "attack" by gangs trying to disrupt Venezuela's economy by storing large numbers of the bills out of the country.
The border between the two countries had only just reopened in August, after being closed for a year.
A fruit seller keeps 100-bolivar notes in a grocery bag at a fruit stand in Caracas on Monday.Credit: Bloomberg
Chaos reigned Monday, a bank holiday, as consumers tried to get rid of the notes by paying with bags full of them, and some businesses refused to accept them.
Interior Minister Nestor Reverol told the country's banking association that an investigation showed more than 300 billion bolivars had already een funnelled out of the country to neighbouring Colombia and beyond.
Reverol accused the United States of being behind an operation to "asphyxiate" Venezuela's financial system and cause suffering to the Venezuelan people.
Starting on Thursday, Venezuela's central bank will begin circulating new denominations from 500 to 20,000 bolivars, as well as new 10, 50 and 100-bolivar coins.
Employees organise 100-bolivar notes at a lottery store in Caracas, Venezuela, on Monday.Credit: Bloomberg
Venezuela's ongoing economic crisis has led to the world's highest inflation, which according to independent estimates will close out 2016 at 600 per cent to 700 per cent.
The country's currency has become close to worthless, with a black market exchange rate of 4500 bolivars to the US dollar - making the 100 bolivar bill worth about two US cents.
A crate filled with 100-bolivar notes sits under the counter of a fruit stand in Caracas.Credit: Bloomberg
The crackdown comes as Venezuela's struggling economy passed another grim milestone: it's the seventh country in Latin America to ever experience hyperinflation.
The term "hyperinflation" is often bandied about, but it's actually quite rare, and only happens when monthly inflation exceeds 50 per cent for more than 30 consecutive days. On December 3, Venezuela did just that, becoming the 57th known case of hyperinflation since France suffered the malaise in 1795.
A man counts his 100-bolivar notes next to a sign on a bakery wall alerting customers that 100-bolivar notes will only be accepted until Tuesday, December 13.Credit: AP
"Venezuela, welcome to the record books," said researchers at Johns Hopkins University as they added the country to their Hanke-Krus World Hyperinflation Table. "You have now entered the inglorious sphere of hyperinflation. It is a world of economic chaos, wrenching poverty and death. Its purveyors should be incarcerated, and the keys should be thrown away."
While Venezuela's case is obviously bad, history shows it could be worse.
The country's implied daily inflation rate is 3.96 per cent, meaning it takes 17.8 days for prices to double. That ranks it at No. 23 on the Hanke-Kraus table. The leaders of that list are Hungary (1945), when prices were doubling every 15 hours, and Zimbabwe (2007), when prices doubled every day.
"Only seven countries have hyperinflated in Latin America, but Venezuela's case is still rather mild by hyperinflation standards," said Steve Hanke, a professor of applied economics at Johns Hopkins University in Baltimore and the co-author of the Hanke-Krus World Hyperinflation Table.
The other countries in the hemisphere that have seen hyperinflation are Argentina (1989), Bolivia (1984), Brazil (1989), Chile (1973), Nicaragua (1986) and Peru (1988 and 1990).
On the streets of Venezuela, however, even the "mild" hyperinflation is generating real pain, as people see their purchasing power sapped amid rolling food shortages and massive shopping lines.
The Central Bank hasn't put out inflation data all year, but Hanke and his team say annual inflation as of December 9 is 375 per cent. Others have said the number could be running twice that high.
Economists and administration critics blame the soaring prices on failed economic policies - including Draconian price and currency controls, which, perversely, have fuelled speculation in the black market.
President Nicolas Maduro and his lieutenants, however, place the blame on "economic warfare" being waged by shadowy forces. On Friday, the government confiscated 4 million toys from the warehouses of Kreisel, one of the country's largest merchandise distributors. The government accused the company of hoarding the trinkets so they could be sold at a "54,000 per cent" mark-up. Now those seized toys will be distributed at "fair prices", the government said.
Miami Herald, DPA