Maduro seeks to speed up digital payments as Venezuela runs out of cash
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[March 15, 2021]
By Corina Pons and Mayela Armas
CARACAS (Reuters) - Venezuelan President
Nicolas Maduro is pressing banks to implement digital payment systems as
hyperinflation prompts chronic shortages of cash in the bolivar
currency, three people familiar with the talks told Reuters.
Maduro has targeted the public transit system - where roughly
three-quarters of all circulating cash is spent - as the first stage of
a plan he calls "the digital bolivar." In January, he asked banks to
deliver point-of-sale terminals to the Caracas subway system and bus
drivers, said the people, who spoke on the condition of anonymity.
With annual inflation hitting 2,665%, long lines form many mornings
outside banks in Caracas as residents seek to withdraw a maximum of
400,000 bolivars - the equivalent of 20 U.S. cents - just to pay round
trip transit fare to get to work.
Venezuelans have stopped using cash bolivars for food and many other
day-to-day purchases. It would take forty bills of 50,000 bolivars to
buy 1 kilo (2.2 lb) of rice. Instead, many use U.S. dollars in cash or
debit cards - sometimes backed by U.S.-dollar accounts at local banks.
But many poor do not have bank accounts and services like public transit
cannot process digital payments.
In a sign of worsening cash shortages, the central bank on March 5
announced it would begin to issue bills worth 1 million bolivars each.
Even that would be worth just a handful of rides.
"Paying transport fares is complicated because there is no cash," said
Marina Ospino, a part-time salesperson and mother of two, as she rode a
bus. "And to run an errand, you need to have a fortune."
Neither Venezuela's information ministry nor the central bank responded
to requests for comment.
While digital payments for public transport are the norm worldwide,
Venezuela never adopted a fare card system.
Maduro's move is similar to a decision by inflation-stricken Argentina a
decade ago to introduce a fare card in the face of coin shortages.
Venezuela's cash shortages and hyperinflation have led to informal
dollarization in the oil-reliant economy. Maduro has celebrated the
dollar's use an "escape valve" to U.S. sanctions aimed at ousting him,
which he blames for the South American country's woes.
But Maduro has resisted abandoning the bolivar, instead pushing banks to
help more Venezuelans open accounts and obtain debit cards, the
financial sector sources said.
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A man changes a dollar bill with the bus driver's assistant, who is
holding a wad of Bolivar banknotes, at a bus stop outside the
Antimano metro station in Caracas, Venezuela March 9, 2021. Picture
taken March 9, 2021. REUTERS/Leonardo Fernandez Viloria
The amount of cash currently in circulation amounts to just 2% of
money supply, down from 7% a few years ago, according to the central
bank.
The result: snaking lines outside banks.
"We are only in line for transit fare," said Karina, a nurse who
declined to give her last name while waiting to withdraw 400,000
bolivars from a state-owned bank in Caracas. "With that, you cannot
even buy a caramel."
'IT'S DISAPPEARING'
Even obtaining paper to print banknotes has been complicated for
Venezuela. The government slashed spending amid a seven-year
recession spurred by a collapse in oil prices and the unraveling of
its socialist model, marked by expropriations, as well as price and
foreign exchange controls.
In 2020, Venezuela purchased two shipments of secure paper for cash
printing from a Brazilian company, according to Import Genius, a
firm that collects customs records for the import-export industry.
An effort to print bills in Turkey was unsuccessful, two people
familiar with the matter said.
In a state television interview this year, Maduro was asked if
physical money was disappearing.
"Yes, it is disappearing. For Venezuela that is a big advantage,"
Maduro said, without providing further details.
Plans to boost digital payments have been slow-going because of the
high costs of imported point-of-sale terminals and debit cards, the
industry sources said.
In the absence of bolivars, many public transit users are turning to
U.S. dollars to pay fares. It is common to see bus drivers'
assistants who collect fares holding wads of greenbacks.
"That's what has saved us, the dollar," said Jose Espinoza, a bus
driver in western Caracas. "Few people have bolivars in cash ...
Right now everyone carries dollars."
(Additional reporting by Johnny Carvajal in Caracas; Writing by Luc
Cohen; Editing by Alistair Bell)
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