Historical Sketch

The north-west of Latin America had come under Spanish rule in the mid-16th century. In 1717, the Viceroyalty of New Granada was split off Peru, consisting of the three provinces of Caracas, Cundinamarca, and Quito. In the early 19th century began the war of liberation which led to the independence of New Granada in 1819. The state adopted the name of Colombia, later referred to as "Greater" Colombia. Within just ten years, the new state broke up, and the three former provinces declared independence as Venezuela (Caracas), New Granada (Cundinamarca), and Ecuador (Quito). In 1861, New Granada changed name again and became Colombia.

Monetary History Overview

Venezuela took over the Colombian Peso of 1826 without immediately enacting a national coinage law. The state did not have the means to restructure the circulating medium. In daily payment transactions, specie coins were the exception, the majority of the circulating medium consisted of debased silver, a large portion being crudely hammered and of irregular shape, the so-called "Macuquina". All sub-standard coins were summarily rated at 80% of face value and referred to as "Peso Sencillo" (or weak Peso), which also became the commonly used accounting unit. In 1843 began the issue of local subsidiary coins, and unlike its neighbours, Venezuela opted for a decimal subunit. In the 1840s, Venezuela began the reform of the currency. In 1848, the country opted for the French accounting system, and the Venezuelan Franc in silver was adopted as unit of account. Between 1854 and 1879, four coinage laws were passed, all based on the five French Francs. The base unit was called Peso or Venezolano, interchangeably, and the standard varied from bimetallism (1854), gold (1857 and 1865) and finally silver (1871) standard. The country did not have the means to create sufficient specie coins for the Venezuelan Venezolano / Peso so that in particular the gold circulation was predominantly foreign and rated against the national currency. The 1857 and 1871 coinage reforms created some silver coins, the latter even a gold coin in modest numbers. In 1879, another attempt at reforming the monetary situation was made. In March, a presidential decree introduced the 1st Venezuelan Bolívar, now corresponding to one French Franc. The issuance of gold coins remained weak so that the foreign coinage remained current, but the foreign silver coins including the "Macuquina" could be withdrawn during the 1880s. After World War I, Venezuela adopted the gold standard which nominally remained in place until 1954. However, during the economic crisis after 1929, the official rate became inoperative. In 1941, the Bolívar got pegged to the US Dollar, and at the same time, the exchange rate structure became multi-tier. Bimetallism was abandoned in 1887 in favour of the gold standard, which remained in place until the beginning of World War I. It was nominally reinstated in the mid-1920, but the Bolívar in fact aligned with the US Dollar, which led to a formal peg in 1941. It remained in place until 1983, with a single devaluation by 25% in January 1964. Like in other Latin American countries the state did not issue paper money, this was left to commercial banks until the mid-20th century. In 1941, the Central Bank of Venezuela began operations, and the private banknotes disappeared gradually. The floating of the exchange rate in February 1983 gave way to a steep depreciation at average annual rates of 20% over the next two decades. The monetary expansion after the Bolivarian Revolution in the early 2000s spurred inflation even further. To stabilize the Bolívar, a US Dollar peg was reinstated in February 2004, with a small adjustment one year later. In January 2008, the currency was reformed. Three zeros were cut, and the 2nd Venezuelan Bolívar (Fuerte) became the new unit. The Dollar peg remained in place but had to be cut by 66% over the next five years. In 2015, the Bolívar's official fixed rate became restricted to a few state transactions, therefore basically inoperative. The central bank created multiple exchange rates, some floating, some fixed, applicable to different economic sectors. The free-market rate depreciated at hyper-inflationary speed. The multiple rate structure was revised in May 2017, and in January 2018, all float management measures were abandoned. A currency redenomination was planned for March 2018 but had to be postponed to August due to the rampant inflation. Instead of three, as originally foreseen, now five zeros were cut, and the 3rd Venezuelan Bolívar (Soberano) became the new unit. Hyperinflation continued and even accelerated due to the political and economic isolation of the late 2010s, reaching average annual rates of 99%. In October 2021, another redenomination took place eliminating six zeros, and the 4th Venezuelan Bolívar (Digital) became the new unit. The Central Bank and the government insisted that no redenomination had occurred with this step, the denominations on banknotes and coins simply got rendered in a different way. Currency depreciation still continued afterwards, however, at a lower pace.

Venezuela joined the International Monetary Fund (IMF) on 30.12.1946.

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