Maduro seeks to speed up digital payments as Venezuela runs out of cash

CARACAS, March 16 ------ 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 as 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. The amount of cash currently in circulation amounts to just 2% of the 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.”

Source: inquirer.net