Originally published at: https://boingboing.net/2018/08/21/facing-60000-percent-inflatio.html
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And no, this is not to be snarky.
My grandparents had …interesting… stories from the 1920ies.
And this repeat will be both a farce and a tragedy.
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How did Germany ever pull out of its hyperinflation (besides letting Nazis take power)?
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A few really interesting aspects of this situation are explained in the embedded Forbes article by Steve Hanke. For example, people wonder if lopping off zeros will work and he explains why it won’t:
Alas, my advice was not followed, and the dinar’s zeros just kept coming off in one cosmetic currency reform after another. In 1992, another zero was removed. Then, in 1993, six were removed in October and another nine came off in December. When the monthly inflation rate reached 313,000,000% in January 1994, another seven zeros were lopped off. In total, from 1990 through 1994, five new dinars were issued and 27 zeros were removed from the hapless dinar.
Unless Venezuela adopts a completely new currency regime—like a currency board, or dollarization—the bolivar will face the same fate as did the Yugoslav dinar. Hyperinflation will soar and the bolivar will more frequently come under the knife.
Hanke states that the Venezuela Currency Crisis could stabilize “within hours” if they dollarize their currency. But here’s the real reason why Maduro doesn’t want to do this:
The chart below shows the bolivar’s free fall and the massive gap between the official exchange rate of 248,521 VEF/USD and the black-market (read: free-market) exchange rate of 6,670,079 VEF/USD. That gap results in a whopping black market premium of 2,584%. It also produces huge profits for Maduro’s cronies who have access to the official rate. They can purchase greenbacks for peanuts and sell them on the black market for an instantaneous profit of 2,584%.
And here’s a very interesting tidbit buried in the mess. Apparently Venezuela will be one of the first countries to peg their money to a specially designed crytocurrency:
In addition to lopping five zeros off of Venezuela’s unit of account, the sovereign bolivar is supposed to be linked to the petro, Venezuela’s cryptocurrency, which is supposed to be anchored to a barrel of oil. So, if the sovereign bolivar works as advertised, Venezuela would move from issuing an irredeemable fiat currency to issuing a commodity-backed redeemable currency.
Fascinating stuff.
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The Germans basically issued a new currency with a limited supply.
The Brazilian story is much more interesting:
http://www.npr.org/sections/money/2010/10/04/130329523/how-fake-money-saved-brazil
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I am in no way justifying Maduro or what he is doing in Venezuela. And I think many of the things Hanke talks about in the article are probably correct. BUT keep in mind that Hanke is an equally blind free marketeer. To him, the moment you question the tenets of capitalism you are mocked as just a #socialist ‘comrade’.
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I know this is boring advice. But instead of electing a populist with limited education as their leader (bus driver turned union leader), people are better off electing a representative with a degree in economics, law, and/or political science. Bonus points if they minor in philosophy, communication, sociology, etc. (while I would love it if leaders had a strong science background, I will admit it’s not strictly necessary to have more than basic scientific understanding to lead people effectively)
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I can guarantee that the so-called sovereign bolivar won’t work, and that petro will be just as much if not more of a scam than the rest of cryptocurrencies. Nobody in the Maduro administration is competent or honest enough to fix things.
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The same way you always fix hyperinflation: they stopped printing so much money. The reason this advice is not more frequently followed usually has to do with corruption and/or stupidity.
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I don’t understand - wouldn’t the people who do this be taking a profit only in a free-falling, soon-to-be-worthless currency? What’s the point? Or is the idea to run some money around this loop a few times and then cash out in dollars?
Or at least a person who has such experts on staff to provide policy advice.
Education is nice but the most important thing is having someone who is smart enough to know what they don’t know.
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They need to be a person who is able to weigh choices even if they don’t understand them in detail. Experts can fill in the details, but some comprehension of the topics that regularly face a government is critical.
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There’s got to be a way out of this. In the case of Yugoslavia (1993) and Argentina (circa 2000-2001), among the many measures, they stopped/slowed down printing money, and accepted the real market value of their currency. Also, I wonder how come Cuba can get on with their economy and currency, while Venezuela doesn’t?
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That’s exactly right. Because they have access to official channels not available to regular folks, they are able to buy Bolivars at the official government exchange rate then resell them on the black market at the huge markup. Then they take their profits out by converting it into some other stable currency like Dollars or Euros.
Think of it this way… you start with one US Dollar which will buy almost 6.7 million Bolivars on the black market. You can then take all that cash and convert it back to USD at the official exchange rate of only 250,000:1. The only people who are able to legally possess US currency are Maduro and his friends.
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Wait, It could get worse.
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What do you call the stage after ‘circling the drain’? Accelerating down the outflow pipe?
Not the first time the Chavista government has done this. Which speaks as to how efficacious this is at fixing the problem:
It’s not
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Who is also Colombian. By law Maduro was/is ineligible to be president but what are a few laws between corrupt friends?
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Too bad Venezuela is in a warm climate. Those stacks of bank notes would be a cost effective way to insulate a house during the winter.
You can use them as toilet paper
