How to Create 6,111,708,711 New Problems

Maduro just announced he wants to withdraw all 6,111,708,711 Bs.100 banknotes from circulation in 72 hours. Seriously.

During a rambling speech today, Nicolás Maduro declared all Bs.100 banknotes will cease to be legal tender in 72 hours. The reason? To deal a blow to cash-trafficking mafias in Cúcuta, the Czech Republic, Ukraine, Germany, and Brazil that would be too slow or too scared to exchange their old bills for new ones.

This is way-out-there voodoo nonsense. In what world is hoarding the world’s fastest-depreciating banknotes a cunning business decision? Only in Maduro’s bizarre #TropicalMierda imagination.

It’s true that there is a premium on cash money in Venezuela right now. It’s there because the entire stock of physical bills is worth a pathetic $186 million at the black market rate, or $5.91 per capita. This is way less than a functional economy needs.

The cash premium is yet another crippling economic distortion. It exists because the Central Bank refused to issue new, higher-denomination banknotes for an irresponsibly long time. It has nothing to do with the evil mafias of PSUV’s fevered imagination. If there’s anyone out there hoarding/trading cash, it’s a consequence of the cash shortage, not the cause.

Maduro’s statements were all-over-the-map, but he intends to replace the old banknotes quickly to make the cash-mafias go bust. He floated contradictory 72 hour and 10 day timeframes to replace the bills.

Confuse thy enemy! The element of surprise! Brilliant stuff…

In any case, take a look at the numbers. They’re crazy:

  • There are 6,111,708,711 Bs.100 banknotes in circulation (about 194 per capita). Bs.100 bills only make up 47% of all banknotes by number, but they account for 77% of the value of all bills.
  • To withdraw all of these 6.11 billion bills, the banking system would need to soak up:
    • 84.9 million bills per hour working round the clock for 72 hours (no going to the toilet)
    • 76.4 million bills per hour working for 8 hours a day for 10 days
  • The 6.11 billion bills take up a volume of 6,901 cubic meters.
    • That’s a stack of bills 667 kilometers long. That happens to be the exact distance between Caracas and Cucuta. Coincidence? I think not!
    • That’s an 83 x 83 meter square packed a meter high with banknotes, or a professional soccer field 1m high in bills.
    • Or it’s a 19 x 19 x 19 meter cube of bills.

Good luck with your plan, Maduro! The numbers certainly suggest you’re not going to be able to withdraw the notes in 72 hours or even 10 days.

¿O se olvidaron que mañana es lunes bancario?

Frank Muci

Frank is a public policy and development researcher in Cambridge, MA.