Hyperinflation is an
extreme case of inflation. A country is said to be experiencing hyperinflation
when the rate of inflation exceeds 50% a month. Hyperinflation occurs when a
country’s prices of goods and services rise drastically but its supply of goods
and services don’t. This results in an increase in price for those goods and
services which eventually leads to hyperinflation.
Source à http://www.usinflationcalculator.com/hyperinflation-explained-definition-causes-and-examples/
Source à http://www.investinganswers.com/financial-dictionary/economics/hyperinflation-4800
The economy in
Venezuela is largely dependent on the oil sector. Oil, which makes up to 95% of
their revenue from exports had been able to sustain Venezuela’s economy for
years. When the price of oil fell, the government couldn’t sustain the economy.
Venezuela was also facing other crises like soaring food prices, broken
hospitals and the shortage of money and gold.
All these factors led to hyperinflation.
Source à http://www.aljazeera.com/indepth/features/2017/05/venezuela-worst-economic-crisis-wrong-170501063130120.html
Exploring the topic – Pros
experiencing the worst economic crisis of its history. The country is heavily
in debt and the inflation rate is soaring. We are going to delve deeper into
how hyperinflation occurred and how it affected the Venezuelan economy.
Venezuela has the
largest oil reserve in the world and its economy is largely dependent on it. 96%
of foreign exchange earnings in Venezuela come from the oil industry. The oil
production in the country suffered from a bad market and insufficient funds
after the fall of the oil price. This led to income falling more than 50%.
To save the oil
production, the government had printed more currency which resulted in its
devaluation. The government also pressured the OPEC to raise the falling oil
prices to help the economy. The oil production in Venezuela continued to
decline and the country started to experience hyperinflation.
Source: Rystad Energy UCube/Luis
Source à Aslund, Anders (May 2, 2017). “Venezuela
Is Heading for a Soviet-Style Collapse”. Foreign Policy. Retrieved 4
Source àCunningham, Nick (July 20, 2017).
“Venezuela is desperate for higher oil prices”. Business Insider.
Retrieved September 23, 2017.
Source à Gillespie, Patrick (July 13, 2017).
“Venezuela oil production dives as big debt bills loom”. CNN.
Retrieved 8 October 2017.
Source à http://money.cnn.com/2016/10/25/news/economy/venezuela-breaking-point/index.html
Source à https://oilprice.com/Energy/Crude-Oil/Venezuelas-National-Oil-Company-On-Its-Last-Legs.html
During Hugo Chavez’s
presidency the price food and medicines were reduced to make them more
affordable for the local population. As a result, the products ended up being
made below the cost of production. While this may have been good for the locals
who now had access to cheaper goods and could now buy more goods, this
negatively affected the companies who produced those goods. They could not make
profit anymore. Private companies were expropriated, Chavez restricted access
to the dollar and fixed the rate. Venezuelans could not change the national
currency into dollars anymore and could not afford a lot of those goods anymore.
stopped producing their own goods when it became unprofitable. The government
then decided to use oil money to import products from abroad. Since the price
of oil had been falling, the economic system has been unable to maintain the
system of subsidies and price control that functioned during the oil boom
years. Source à http://www.aljazeera.com/indepth/features/2017/05/venezuela-worst-economic-crisis-wrong-170501063130120.html The inability to pay for imports and the
decline in oil revenues led to a shortage of goods like food and medicine. The
government unsuccessfully tried to ration food and set their prices, but this
only led to products ending up overpriced on the black market.
The value of the bolivars Fuertes has plummeted since the country’s
economic crisis. Nowadays €1 is worth around 12.62 bolivars Fuertes.
Uncontrolled printing of base money and a dramatic decline in production are
the main reasons why consumers prices keep rising at unprecedent levels. The
imbalance between the abundance of nominal money and the lack of goods and
services in the marketplace triggers a drop in the real value of the bolivar and
the purchasing power of citizens, who due to their expectations of higher
inflation rates in the future avoid saving in the national currency and rush to
spend the money they currently have. Source à https://www.efe.com/efe/english/business/money-printing-production-plunge-cause-hyperinflation-in-venezuela/50000265-3428752 According to the most recent study by the opposition think tank Center
for Documentation and Analysis for Workers (CENDA), a Venezuelan needs almost
half of his or her minimum salary to cover an average household’s basic needs
for a single day. Source à https://www.efe.com/efe/english/business/money-printing-production-plunge-cause-hyperinflation-in-venezuela/50000265-3428752 The continued devaluation of bolivars Fuertes
has driven thousands of Venezuelans to take to mining bitcoin in order to pay
for basic products.