What is hyperinflation?
Hyper Inflation is the term used to describe a large increase in the prices over a continuous time period, accompanied by steep fall in the value of the currency. Due to this the consumer almost requires a wheelbarrow full of money even to purchase the basic necessities.The problem of hyperinflation comes when the supply of paper money in the economy exceeds the demand for goods and services, which causes the value of currency to fall.
A roll of toilet paper costs 2.6 million Venezuelan Bolivar today!
What caused this hyperinflation?
The bulk of the Venezuelan budget is derived from oil revenues. The Venezuelan government depends on sales from its state oil company to pay its debts. Lower oil prices have significantly reduced revenues associated with Venezuela’s oil exports. Additionally due to mismanagement of the state oil company, oil production in July dropped to 1.2 million barrels a day, which was equivalent to monthly production in 1947.To combat the drop in overall revenues from oil, the government asked the central bank to print more currency which in turn decreased the value of the currency.
What does IMF have to say about hyperinflation in Venezuela?
IMF economists are predicting that Venezuela’s inflation rate could exceed 1,000,000% this year
What do economists have to say about the cosmetic solution Venezuela came up with?
The president came up with a cosmetic solution to mint new currencies slashing five zeroes from the bolivar and calling it “Sovereign Bolivar”.
The economists believe that this measure by the president adds to the decades of mismanagement which has led to this state of the Venezuelan Economy.
Unless the country makes some drastic changes in the economic policy there is no solution to the hyperinflation.
