Caracas, December 19, 2016 (venezuelanalysis.com) – Venezuelan President Nicolas Maduro has extended the deadline for the withdrawal of the country’s highest denomination banknote until January 2, backtracking on a decision to remove the bill with almost immediate effect last week.
Last Sunday, Maduro informed the public that Venezuela’s 100 bolivar bill would be “null and void” by the end of the week as part of a manoeuvre to crack down on currency smuggling and speculation against the value of the bolivar.
The news saw citizens rushing to national banks en masse to deposit their remaining bills on Wednesday through to Friday, taking advantage of a 72 hour grace period set by the government. Venezuelan borders with Brazil and Colombia were also temporarily closed as part of the sudden move.
In an unexpected announcement on Saturday night, however, the Venezuelan head of state backpedaled on the initial decision, extending both the legal circulation of the notes as well as the border closures until January 2. The president said that international sabotage against the cargo planes flying the new bills to Venezuela was responsible for the sudden policy change.
“One plane flying from one city to another, contracted and already paid for by Venezuela, was given the order mid-flight ‘this is a diversion, go to another country’. Three special cargo planes that we contracted to bring the new banknotes called, ‘we can’t do the journey’… Venezuela is the victim of international sabotage against the arrival of the new notes,” said the head of state.
“Today we were meant to have a good part of the 500, 2000 and 20,000 [bolivar] banknotes. They simply couldn’t arrive because they sabotaged our special cargo planes,” he added.
Earlier in December Venezuela’s Central Bank announced that a new set of higher denomination coins and bank notes ranging from 500 bolivar bills to 20,000 would be progressively introduced into circulation as of December 15.
The Central Bank of Venezuela contracted US transnational company Crane Currency to provide the majority of the new banknotes. Nevertheless, the first installment failed to arrive from the company’s Sweden headquarters on Thursday.
According the statements from the president, the delivery was allegedly blocked by the US Treasury, which directly intervened to prevent the arrival of the new notes on time. Bloomberg has also reported that Crane Currency had failed to fill its Venezuela order by the Thursday deadline, according to unnamed sources. The company is responsible for printing US Dollar bills.
The no-show meant that the new banknotes failed to enter into circulation by the end of the week as expected, provoking confusion among much of the population. Cash machines also continued to dispense the defunct 100 bolivar bills to frustrated users.
Despite the difficulties, the majority of Venezuela’s twenty-three states presented no incidents over the weekend while the capital remained calm.
Nonetheless several episodes of looting and roadblocks broke out Friday and over the weekend in the border state of Bolivar, where backlash to the surprise withdrawal of the bills was strongest.
Small isolated incidents of looting were also reported in the border state of Zulia, while three government banks were ransacked in Guasdualito in Apure state.
So far 286 people have been arrested for acts of vandalism and disturbing the peace in Bolivar, including five police officers, confirmed Interior Minister Nestor Reverol. A government intervention in Bolivar’s state police force is also planned, he confirmed, while a curfew has been imposed and security levels increased.
Videos of the unrest were circulated throughout the weekend via social media, while the hashtag "#SOSBolivar" trended on Twitter. Vice-president Aristobulo Iturriz flew out to the state earlier this Monday to coordinate security efforts.
Bolivar has become increasingly dependent on neighboring Brazil for food and medicine imports, as well as particularly reliant on activities in the illegal cash economy, such as mining. The government blames the disturbances on saboteurs from the “ultra rightwing” in the region, who they say are taking advantage of the monetary difficulties to promote unrest.
In spite of the incidents, Maduro said that last week’s move to recall the bills had “fulfilled its objectives” after revealing that national banks had managed to recover approximately 70 percent of the country’s 100 bolivar notes, up from just five percent.
The value of the dollar on the black market also decreased substantially in response to the new policy. When the new measure was first announced on December 11, the black market dollar stood at 4250. Over the past week, the parallel rate has steadily dropped to around 2500.
The government accuses mafias on the border with Colombia of smuggling its 100 bolivar banknotes out of the country in order to change them for pesos at a more profitable rate in Bogota. The pesos are then used to buy dollars that are sold in Venezuela at the black market rate for a significant profit, undermining the bolivar’s value.
The 100 bolivar banknotes will now continue to circulate until January 2, while the first installment of the 500 bolivar bank notes has now arrived in Venezuela, according to state media.
In an official statement, the national government also confirmed that it would put into effect a series of measures to streamline the transition over to the new banknotes. The actions include free transport on state bus, metro and rail services until January 15 and the removal of 100 bolivar bills from cash machines. Those with large quantities of 100 bolivar notes will also be able to deposit them at the Central Bank of Venezuela until January 2.