Venezuela Hyperinflation

By Green Snake

Introduction

Today, I'm going to be talking about hyperinflation in Venezuela.

What is Inflation

Inflation is caused when the money supply goes up a lot. This dilutes value of the money supply. When everyone has more money, they have a tendency to spend more. Increased demand, with the same supply of goods, causes prices to rise. Your purchasing power is diminished. You are losing just by holding on to the funny money.

Venezuelan Inflation

Venezuela gave a ton of freebies thanks to the government oil production and money borrowing. This became unsustainable. To continue the freebies, the government just prints the money to oblivion.(Source: cnbc.com)(Source: NPR)

Venezuelan Money

The US Dollar is abbreviated to "USD."

On January 2008, the original bolívar (sign: Bs; code: VEB) was replaced by the hard bolívar (bolívar fuerte in Spanish, sign: Bs.F, code: VEF).

On August 2018, there was a new currency, the sovereign bolívar (bolívar soberano in Spanish, sign: Bs.S, code: VES). So 100,000 VEF = 1 VES.

On October 2021, yet another revaluation, "Nueva expresión monetaria" which exchanged: VES 1,000,000 = Bs.D 1.

To summarize: VEB (Bs) ➡️ VEF (Bs.F) ➡️ VES (Bs.s) ➡️ (Bs.D)

(wiki: Venezuelan Bolívar)

You can buy the currency off of ebay.com. For a few US dollars, you can become a millionaire.(link : ebay.com)

Venezuelan Hyperinflationary Journey

To help solve inflation (psychologically), the government launch a new currency where they cut off zeroes from the old currency.(source: Reuters)

At one point, annual inflation was 48,000%.(source : Forbes)

Money supply was up 200% in one year.(source: Reuters)
Venezuelan money printer go brrr.(chart source: Reuters)

There's so much currency, people throw it away outside.(source: Miami Herald)

Here's a visualization of hyperinflation. For a whole chicken, you need 14,600,000 bolivars or about 4 briefcases of currency.(source: NBC news)

An increase of poverty, hunger, sickness, crime, violence.(source: Time)

Even with the world's largest oil reserves, they have fuel shortages. There are claims that fuel is being smuggled in.(source: NPR)(wiki: Fuel shortages in Venezuela)

Their stock markets went vertical.(source: cnbc)


The UK government says this about traveling there:(source: gov.uk)

There is a high threat from violent crime and kidnapping throughout Venezuela, which has one of the highest murder rates in the world. Armed robbery, mugging, carjacking, and burglary are all common and are often accompanied by extreme levels of violence - do not resist an attacker. These crimes can occur on the street or the beach, in supermarket queues or when travelling in private vehicles or public transport, or indoors. Remain alert and avoid using your mobile phone or displaying other electronic equipment or valuables on the street or in a vehicle.

The US government advises you to not travel here due to tons of crime.(source: travel.state.gov)

To combat rising prices, the government set price controls. In a free market, a price for something is set by two willing parties. Imagine swordfish steaks for something miniscule like $1. A regular person would recognize the high value and jump on the opportunity to buy. Swordfish is hard to catch, so this low price would destroy economic incentive to produce more, thus causing shortages.

Also, if you really wanted swordfish steaks, you can't go to the store since it's all sold out. People turn to black markets. Black markets reveal true prices. You'll find your swordfish steaks but at prices higher than the ones artificially set by the government.

Remember that price controls are enforced by force. You could be imprisoned for 14 years.(source: Reuters 1)(source: Reuters 2)(wiki: Shortages in Venezuela)

To stop black markets, the government bans (censors) websites posting black market prices.(source: cpj.org)

Long lines form for bread at the supermarket. Engineers and lawyers become food smugglers and make big money. One engineer smuggles artificially cheap petrol (thanks to government subsidies) from Venezuela to high-priced Columbia to make tons of money.(source: The Guardian)

Zoo animals likely stolen to be eaten.(source: mongabay)

People eating out of dumpsters to survive.(source: Reuters)

Mafias formed to smuggle meat in regular unrefrigerated cars.(source: foodnavigator-usa).

In 2019, President Maduro says that his country doesn't need humanitarian aid.(source: Forbes)

Venezuelan Silver

One thing I look at is what would be the case if a Venezuelan held something other than their depreciating currency such as silver. You can do this analysis with anything other than silver such as bags of sugar.

The price of silver (priced in VES) goes vertical.(source: goldbroker.com)

Check out the conversion rate from 1 oz Silver to VES.(link)
At the time of this writing, 1 oz of silver is 164.95 VES or 20.13 USD.

Check out the cost of living in terms of VES here.(link)
According to this, a 1 pound bag of rice is 4.10 VES. So 1 oz of silver would give you ~40 lbs of rice. 40 lbs of rice is ~23,600 calories.(source: fatsecret.com)A man needs a recommended 2,000 calories per day.(source: nhs.uk)

So this 40 lb bag (or 1oz of silver) will last a man ~11.8 days. In the USA, a 40 lb bag of rice costs ~$20.(source: Walmart, Great Value Long Grain Rice 320oz. $0.031 cents per oz)

So today, 1 oz of silver is the same as a 40 lb of bag in USA or Venezuela.

Conclusion

Hyperinflation is a tragedy and the losers are those who hold the hyperinflated currency. Having anything of intrinsic value is the solution. So having your life savings in bags of sugar is a better idea than questionable government currency. And people actually did that.(source: NPR)(source: AP)Governments need to not print their currencies to oblivion. If you say "this will never happen to my country," Venezuela used to be one of the richest countries in the world.(source: harvard.edu)

(wiki: Hyperinflation in Venezuela)