For the third consecutive month, the hyperinflation has slowed. The National Assembly reported inflation of 31.3% in May. This deceleration is due to the recent increase in marginal reserve requirement, which has also slowed the growth of monetary liquidity and the parallel exchange rate (Figure 1), alleviating inflationary pressures.
Panel 1 Comparison between monthly inflation, Monetary Liquidity and parallel dollar in Venezuela
Sources: Central Bank of Venezuela, DolarToday, Permanent Commission of Finance and Economic Development of National Assembly of Venezuela, own calculations.
However, on June 13, the Central Bank of Venezuela announced the introduction of three new high denomination bills to address the public’s difficulties in accessing cash(1, 2). Despite the recent data showing the slowing inflation, the new high denomination bills are consistent with the expectation that inflation may accelerate in the coming months.
At the time of monetary reconversion and the introduction of the current banknotes in August-September 2018, the highest denomination bill (Bs.S 500) represented only 1.2% of the total banknotes issued by the Central Bank of Venezuela. Progressively, faced with the escalation of prices and the declining purchasing power of banknotes, lower denomination bills (Bs. 2, Bs. 5 and Bs. 10) have been displaced (and even rejected by the public) in favor of those of greater denomination, now representing 89.5% of all bills in circulation.
Panel 2 Comparison between the distributions of bills in circulation in Venezuela (As percentage of total)
Sources: Central Bank of Venezuela, own calculations.
- See: http://www.bcv.org.ve/notas-de-prensa/tres-nuevos-billetes-se-incorporan-al-cono-monetario-vigente.
- The new bills will have a value of Bs. 10,000, Bs. 20,000 and Bs. 50,000 each, which (taking into account the value of the exchange rate of DolarToday for Friday June 14, would be equivalent to about US$ 1.5; US$ 3.0 and US$ 7.5 respectively). Sources: Press release of the Central Bank of Venezuela, DolarToday, own calculations.