India and Venezuela, located on the northern coast of South America, have hardly anything in common. But millions of Indians and Venezuelans are now united in a sense of uncertainty after their governments effected demonetisation of a bulk of their currencies. On November 8, India scrapped currency notes adding up to 86 per cent of the value and on December 11, Venezuela took away the legal tender status of its 100 bolívar bill, which accounted for 77 per cent of the nation's cash volume. The decision has caused cash chaos and long queues at banks in both countries. As the banknotes went out of circulation, the cash that was supposed to replace them was not enough at banks or ATMs. And most people were either relying on credit cards and digital payments, or avoiding making purchases altogether.
There are other similarities, too. While Prime Minister Narendra Modi has termed his decision as a war against black money hoarders and a move to usher in a less-cash economy, President Nicolás Madurao has said his decision will “burn the hands of the mafia”. Both have praised the common man for their understanding in televised addresses, even though the recipients of the praise are not amused. India’s real economy has slowed down considerably and the bulk of the informal sector, which accounts for almost 80 per cent of jobs and around 40 per cent of output, is standing in queues.
But there are many differences as well. If in India it was a case of creating a crisis when there was none, Venezuela was already in a deep economic mess. There are valid reasons why it wants to reform its legal tender. A sharp fall in crude oil prices over the past few years and mismanagement in the country’s oil industry meant that revenues from oil exports have plummeted. Between 2001 and 2015, the state oil company contributed more than $250 billion and this money was used to fund expansive social welfare programmes. But today Venezuela’s oil production has fallen so sharply that it imports oil from the US, even as erstwhile steady buyers such as Cuba look towards Russia for cheaper oil.
The collapse of the oil economy has wreaked havoc — from food shortages to unavailability of essential medicines. The economy is expected to contract by a whopping 10 per cent and predictably prices of everything have soared. Since the older notes, which are now defunct, were introduced in 2008, inflation has gone up by an astounding 17,000 per cent. The bolivar has lost 60 per cent of its value in the past two months alone. There is a genuine problem when you have to pay a 20,000 dinner bill in 100 bolivar notes. The introduction of new bills of higher denominations is targeted at dealing with such runaway inflation.
However, none of this takes away from shoddy implementation in both countries. It is another matter that Venezuela seems to have outdone India in this. Unlike in India, where citizens had close to two months to exchange currency, Mr Maduro had initially provided just 72 hours. And while India's efforts to remonetise have been shoddy, they look much better in comparison to Venezuela's. Moreover, Mr Modi waited for the biggest annual festival -- Diwali - to pass by, unlike Mr Maduro who has done it a fortnight before Christmas.
Not surprisingly, both governments are trying hard to paper over their blunders -- India has announced a national-level lottery scheme as a welfare fund for the poor to promote digital payments while the Venezuelan president has decided to play Santa by distributing toys confiscated from a toymaker that, he said, was charging too much. Few in both the countries are convinced.