Impact of Demonetization 2016 on Venezuelan Economy

Abstract

This article aims to analyze the impact of desmonetization 2016 on Venezuelan economy. The government of Venezuela demonetized the 100 bolívares notes on December 11, 2016 for achieving economic, monetary and price stability, eliminating the smuggling of banknotes, achieving a higher level of efficiency and quality in government management, and eliminating the laundering of bolívares. In this sense, the origin of the measure is presented and the proposed objectives set are explored. It is resulted that the measure generated shortages of cash, changes in production decisions and commercialization of goods, increase in deposits in the Venezuelan banking system, change in the evolution of monetary aggregates, protests in the offices of banking, and a new distribution of the monetary cone. The originality of this work lies in it being pioneer in analyzing the impact of demonetizations implemented in Venezuela and Latin America. It is concluded that the desmonetization represented a monetary shock that altered the evolution of the economy and required complementary measures to mitigate its negative effects on the welfare of the population.