Venezuela to Knock Five Zeros off Currency in Face of Crippling Inflation

Venezuela has announced a new strategy to deal with out-of-control inflation—knocking five zeros off the end of its bolívar currency.

The embattled government had initially planned to remove three zeros, but rampant inflation has convinced President Nicolas Maduro to go further, Reuters reported.

The news comes days after the International Monetary Fund (IMF) estimated that the country would see 1 million percent inflation by the end of this year. Venezuela is grappling with a crash in oil prices that has opened gaping holes in the national budget. Inflation has soared as the government prints more money to try and cover the shortfall.

"The monetary reconversion will start on August 20," Maduro said in a televised broadcast Wednesday, displaying the new bills that will be released next month. The revamped currency will now be known as the Sovereign Bolivar, the president said, arguing the move would "stabilize and change the country's monetary life in a radical way."

The president also said the adjustment to the bolívar would tie it to the new state-backed cryptocurrency called the petro, though offered no further details. Observers are skeptical about the petro's prospects, citing a lack of confidence in Maduro's ailing government and the poor state of the bolívar.

For many years, Venezuela subsidized various industries using oil revenues. This enabled the government to enforce strict price controls making its leaders popular with the country's poor working class. As oil prices collapsed from 2014 onwards, this became increasingly difficult.

Alejandro Werner, the head of the IMF's Western Hemisphere department, said earlier this week that the country was in "a profound economic and social crisis."

In a blog post, he explained: "The collapse in economic activity, hyperinflation and increasing deterioration in the provision of public goods as well as shortages of food at subsidized prices have resulted in large migration flows, which will lead to intensifying spillover effects on neighboring countries."

Read more: Inflation in Venezuela will hit unprecedented 1 million percent by end of year: IMF

More than a million people have already fled the country, many to neighboring Colombia. According to the United Nations High Commissioner for Refugees, around 5,000 people are leaving Venezuela every day.

The collapsing bolívar has left Venezuela struggling to import food, fuel and medical supplies. According to the opposition-run Congress, inflation topped 46,000 percent in June, making it difficult for citizens to obtain cash to pay for day-to-day necessities. Maduro has increased the national minimum wage four times this year in an attempt to soften the blow. The minimum salary is now around 3 million bolívars per month—around $1.14 on the black market exchange rate, Reuters said.

Maduro has said the turmoil is a result of an "economic war" being waged by the domestic opposition in coordination with the U.S. Several government ministers are currently under American economic sanctions.