Inflation in Venezuela

Inflation in Venezuela 

Venezuelan protests

Venezuela the country we have heard that has the most underground oil in the world. They have always paid its debts - even at the expense of its citizens. But Venezuela is now officially in default, which meant it's officially bankrupt. Venezuela’s economy is collapsing. The news of the economic meltdown in Venezuela has been around for almost 4 years. This is the result of years of socialism, incompetence, and corruption, among other things. An important element that mirrors the economy’s collapse is Venezuela’s currency, the bolivar. It is not trustworthy. Venezuela’s exchange rate regime provides no discipline. It only produces instability and poverty. Currently, Venezuela is experiencing one of the the highest inflation in the world.

Economic problems in Venezuela

As the world’s largest oil reserves lied beneath the country, Venezuela has established PDVSA, the Venezuelan state-owned oil company, to provide the government with substantial funding resources. Oil accounts for almost all exports and half of the state revenues. Production has yet recently declined due to the PDVSA mismanagement. With oil prices and revenues dropping continuously Venezuela has a great deal of trouble dealing with foreign debt by using bureaucracy and paying for goods. Many multinational firms have pulled out of the country. Shortages of food, medicines, and other consumer goods, combined with near hyperinflation, have accompanied the worst economic conditions ever recorded.

Causes of inflation

In general, price inflation can occur from various causes such as central bank’s control over money supply, government decisions on fiscal policy economic and economic factors. 

However, the recent defaults on government bonds is the leading cause of the current crisis in Venezuela. The Bolivar, Venezuela’s national currency, is at its state of near worthlessness as the government is facing bankruptcy and has been planning about explicitly defaulting on its $185 billion in external debt. The country no longer has the option of just printing more currency to pay off its debt as its value is already falling. The decline in the value of the Bolivar has led to Venezuela’s economic collapse. It is impossible for the government to pay for products, causing shortages and consumer prices to rise astronomically. 

Furthermore, Venezuela’s overdependence on oil and lack of saving during its prime time are also largely to blame for the hyperinflation. In times of oil booms, Venezuelan governments go on spending sprees that don’t really generate into productive domestic industrial sectors. It means the country has become too dependent on imports. Therefore, lower oil prices over the past year have significantly reduced its revenues.

Existence of currency black market

The black market in currencies means the illegal market in foreign exchange in many countries around the world. The currency black market forms part of the underground economy by virtue of operating outside legal banking channels.

Currency black markets are created in countries that have the following characteristics:  

• Weak economic fundamentals, such as a high rate of inflation and limited foreign exchange reserves.
• Strict currency controls that limit the amount of foreign currency available to their people.
• A fixed exchange rate regime where the domestic currency is held at an unrealistically high exchange rate to the U.S. dollar or another global currency.
• A lack of confidence among the citizenry in the value of the domestic currency. 

Briefly, demand for foreign currencies is created in a nation with these characteristics, as its citizens don’t want to take risks on cash holdings. However, the currency controls make it extremely difficult for people to buy foreign currencies with their domestic currency at the official exchange rate. Therefore, A black market develops for foreign currencies that would generally be priced at a significant premium to the official exchange rate, because of its artificial value and the demand-supply imbalance.

Venezuela Updates

In the present, the Venezuelan government has stacked in the courts with judges and the Venezuelan people protest due to severe shortages of medicines, medical supplies, and food. Many Venezuelans cannot afford their families or access basic healthcare. So, hundreds of thousands of Venezuelans are fleeing this country because they cannot be patient with the lack of human rights and humanitarian crisis. Meanwhile, many countries, especially US and the European Union, started to embargo and ban doing any international business with Venezuela.

For more interesting news, browse the website at http://todayvenezuela.com