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Venezuela tries to combat crippling inflation by removing five zeroes from currency
A man shows new 500-Bolivar-notes (74 cents of U.S. dollar) in Caracas on Jan. 16, 2017. In order to combat progressively worsening inflation, the Venezuelan government announced Wednesday that it would remove five zeros from its currency. (2017 file photo/Juan Barreto/AFP/Getty Images)

Venezuela tries to combat crippling inflation by removing five zeroes from currency

Venezuelan President Nicolas Maduro announced Wednesday that the South American nation would be removing five zeros from its currency in order to combat runaway inflation that is nearing a staggering 1 million percent.

Will this help the economy?

In a speech, Maduro said that this move would stabilize the economy by "anchoring" the bolivar. Maduro said that the country needed an “economic revolution.”

Inflation in Venezuela is expected to reach 1 million percent by the end of the year, according to the International Monetary Fund. Initially, Maduro's government had planned to remove three zeros from the currency, but Maduro revealed in this announcement that the number had been increased to five. Inflation is currently at 46,000 percent.

As a result of the crippling inflation and economic instability, Venezuela's minimum wage is the equivalent of one U.S. dollar a month. This has made it impossible for Venezuelans to buy even basic necessities.

Maduro also said that the government would be tying the bolivar to the petro, a state-backed cryptocurrency. However, a lack of confidence in Maduro's government has plagued the petro from the start.

The new "Sovereign Bolivar" will be released in denominations of 2 to 500 (instead of the current range of 200,000 to 50,000,000). The IMF has compared the current situation in Venezuela to that in Zimbabwe in the 2000s or post-World War I Germany.

During his speech, Maduro also said that he would fix Venezuela's oil sector, but he failed to clarify as to what that might look like.

What happened in Venezuela?

Maduro took over after the death of former Venezuelan President Hugo Chavez in 2013. Chavez came to power on the promise of improving the lives of the poor in Venezuela through socialism.

Maduro's government's socialist policies have made it impossible for the country to cope with falling oil prices. According to the CIA World Factbook, oil revenues still "account for almost all export earnings and nearly half of the government’s revenue."

But Maduro refused to admit that his government might even be part of the problem. Maduro and his government have claimed to be the victims in what they see as an “economic war” waged against it by both Venezuelan opposition and foreign nations like the U.S.

The U.S. has imposed sanctions on the Venezuelan government in order to restrict "the regime's ability to liquidate state assets at fire-sale prices at the expense of the Venezuelan people." President Barack Obama had also issued sanctions against some Venezuelan government officials.

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