Venezuela: Experiencing Free Fall

Worried about higher prices when you go to the supermarket? So are Venezuelans. Consumer prices saw a 6,147 percent annual increase in February. That may be purely theoretical since spiraling inflation has left the country with so few necessities left to buy, desperate Venezuelans are going without food and medicine. What few goods are available are bought on the black market. The average Venezuelan earns a mere dollar or so a month. A bag of rice, if it can be found, costs 8,000 Bolivars, far out of reach of Venezuela’s minimum wage earners.

As opposition economist Angel Alvarado proclaims, “Made in Socialism!” Venezuela’s misery is the result of socialist policies run amok.

The Bolivar lost 98 percent of value in 2017 as Venezuela is experiencing extreme hyperinflation, with no end in sight. The country’s answer to this problem? Venezuela has introduced a new bank note, the $100,000 Bolivar, which is worth about $0.5. Just two years ago, the highest denomination was the $100 Bolivar. Venezuela appears to be acting out its own sequel to the Weimar Republic’s financial crisis – printing worthless paper money – as it struggles with the worse economic disaster in its history.

The crisis began in 2012 when oil prices plummeted to a new low. Venezuela depends on oil for 95 percent of its export income, but the country’s oil production fell by around 29 percent in 2017.

The lack of available currency makes necessary purchases nearly impossible. As a solution to the problem, the town of Elorza, with around 26,000 inhabitants, has issued a currency of its own, the “Elorza,” in a desperate attempt to deal with the country’s hyperinflation. Sold in local municipal offices, the Elorza is meant to allow the town’s citizens and tourists to purchase small, needed items. Unspent Elorza can be exchanged for Bolivars for a fee.

Elorza is Venezuela’s second city that has attempted to create an alternative currency. Last year, the city of Caracas issued the panal in an effort to deal with its cash shortage. Owners of the panal could exchange it for desperately needed rice.

While the Bolivar continues its freefall, Venezuela has announced a presale of oil-backed cryptocurrency it calls Petro. President Trump’s sanctions against the country have made moving money through international banks to pay off debts difficult. It is doubtful that many countries will accept the Petro as payment.

Venezuela is the first country to issue its own cryptocurrency, and President Maduro is lauding the move as the country’s financial salvation. Skeptics have their doubts. The Petro will not be backed by the Bolivar, nor can it be purchased by the Bolivar, raising questions how it will affect millions of starving, goods-deprived citizens. With the currency such as the Bolivar becoming close to useless, people are wondering how a digital currency can save Venezuela’s economy.

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