Venezuelans launch new currencies

The rural city of Elorza, in the southwestern state of Apure, is known as the "capital of Venezuelan folklore" and on Monday, it inaugurated its yearly festivities for the patron Saint Joseph with a fresh new currency.

Locals and out-of-towners will be permitted to use the city's namesake currency, "the elorza," to buy artisanal goods, food, drinks, to attend traditional music concerts and bet on cockfights, among other activities. Money will flow on the city's yearly festival, despite the deep economic crisis that plagues the South American country.

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The mayor of Elorza, Solfredis Solorzano, a member of the governing PSUV party, introduced the currency measure so that the country's hyperinflation and shortage of bolivares, Venezuela's official currency, would not be an impediment to carrying out the celebrations. The local press announced that 50,000 and 100,000 elorzas would be available to exchange for bolivares.

The controversial experiment has met some resistance. In an interview with Venezuelan online media outlet Runrun.es, the head of the Finance Commission of the Venezuelan Parliament and opposition politician, Jose Guerra, denounced that if Solorzano was not punished for his unilateral currency action, it could lead the way for other communities to launch their own money, without any kind of official backing.

"This is a crime. No one can launch a new currency, except the Venezuelan Central Bank," said Guerra, adding that the Central Bank's own inability to provide the economy with "the required number" of bolivares was fostering this kind of illicit activity.

'Socialist' alternative currencies

The premise for communities issuing their own currency in Venezuela comes from one of Hugo Chavez's strongholds in Caracas. In 2017, the civil association Fuerza Patriotica Alexis Vive (FPAV) was inspired by the late president's "socialist commune" concept to establish and mint a new currency in the community of El Panal 2021. Located in the 23 de Enero (23 of January) slum, the new currency was named "the panal" and the issuing bank "BanPanal."

Much like the leaders of the city of Elorza, the FPAV civil association wanted to create an autonomous monetary system of limited range that would tackle the problem of accelerated devaluation of the bolivar, as well as the shortage of paper money in Venezuela.

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The panal was to be used within the boundaries of Panal 2021 and among its 13,000 inhabitants. By December last year, 62,000 bills had been issued and the maximum amount that individuals could hold had not been determined. The currency had three possible denominations:  10, 5 and 1 panal, which was worth 5,000 bolivares (a little over $1 (€0.8), at the government exchange rate).

According to EFE News Agency, FPAV is also eying the expansion of its project. The community association is hoping to introduce coins, acquire cryptocurrency mining skills, enable digital transactions within the community and export the model to other Venezuelan states.

Challenges to implementation

Venezuelan online media outlet Elestimulo.com has argued that the panal has struggled to gain acceptance in the Caracas slum where it was founded. "Its currency denominations cannot adjust to prices, many businesses don't accept them and there are few goods that can be bought with them," wrote Felipe Rotjes, in a report about the panal published in February.

Elestimulo warned that the elorza currency could also face some challenges. In a report this week, local journalist Eduardo Galindo told Elestimulo that businesses are reluctant to accept the new bills in part because "the mayor's office is charging a 5 percent commission for their purchase."

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Economist Pedro Morazan of the Südwind Institute sees the situation as reminiscent of Argentina's currency crisis in 2002. After the economic free fall of former president Carlos Menem's administration (1989-1999), the then governor of Buenos Aires, Carlos Ruckauf, authorized the circulation of a provisional new currency, the "patacon," to alleviate the effects of the financial crisis.

Morazan said that among the disadvantages of parallel currencies are the fact that debt cannot be issued through them and that, since they are not recognized by central banks or the international market, their value varies widely with every given transaction.

The patacon "circulated for some months, until the Argentinian Central Bank took actions that made its use unnecessary," explained Morazan. But in the case of Venezuela, he said that the emergence of parallel currencies will only make the bolivar more and more obsolete as a national currency.

Are the petro and the bolivar doomed?

A solution, Morazan said, would be for the Venezuelan government to create a new currency. President Nicolas Maduro did actually launch a new cryptocurrency last month, "the petro," but Morazan does not believe that it can be successful.

"Cryptocurrencies' success is based on user confidence" and confidence is something that the Maduro government lacks, he said. Just this week, the United States prohibited its citizens and businesses from using the petro on the basis that doing so would "directly support" the Venezuelan government.

Alternative currencies are not the only consequences of Venezuela's economic crisis. According to newspaper "El Colombiano", the Colombian peso is now replacing the bolivar as the preferred currency in the Venezuelan city of San Cristobal.

Alejandro Marquez Velazquez, economist at the Free University of Berlin, believes that the cause for this lies in the continued shortage of bolivares. This central problem and the distortions of the Venezuelan economy, Marquez Velazquez said, are forcing people to continue to take part in unusual and risky economic practices, never before seen in Venezuela.