Venezuela Archives -
The teenager says he is beginning to forget colors, after being blinded in a July 2 protest in the Andean city of San Cristobal, Venezuela.
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Venezuela is being crushed by staggering hyperinflation as a sharply divisive political crisis has the economy in ruins. Some are seeking refuge in alternatives to the national currency, like foreign fiat and crypto. The situation also calls into question the long-term trajectories of other, less volatile economies. National banks globally have been consistently struggling to balance fiat value against interest rate policy now for decades.
Soaring Inflation in Venezuela
Hyperinflation in Venezuela has been projected by the IMF to reach 10,000,000% some time this year. The Venezuelan AN (Finance Committee of the National Assembly) puts the final inflation rate for 2018 at 1,698,488.2%. According to recent statistics, that number has since fallen below 1,000,000%, but the reasons for this are unclear, and the numbers are being called into question.
While data from different government agencies and economic research groups vary, what is agreed upon is that the Venezuelan bolivar (VEF) has been rendered almost worthless. With the divided Venezuelan government in shambles, an economic crisis has emerged where consistent and reliable data is not easy to come by. And more importantly, where basic survival has become a challenge for large numbers of individuals living in the country.
Venezuelan Government Reports Questionable Trends
While the BCV report presents a somewhat positive outlook, others disagree. According to venezuelanalysis.com, the situation is not bright or favorable at all:
This is something we’ve been stressing: the essence of the anti-inflationary policies consists in shrinking people’s purchasing power as much as possible, so that they won’t buy dollars in the black market, – those who could afford it – thus stabilizing the exchange rate. But more than that, the goal is that people, in general, buy less of everything so that there’s less pressure on prices to go up.
The reported statistics thus might be simply a reflection of a drastically shrivelled GDP, and cherry-picking research methods. At street level, the Venezuelan bolivar is virtually lifeless, and the government has already had to issue bills of strikingly large denominations to keep up.
People are frequently paying for goods with black market USD, purchased illegally due to high demand and strong restrictions placed on official market channels. To get an idea of just how staggering the numbers are, a video by Youtube channel Livelydata (based on IMF statistics) provides an eye-opening comparative analysis.
Inflation in Other Countries
Venezuela currently leads the world in national inflation, but this doesn’t mean that other countries remain unaffected by global trends. While the top 10 countries hit hardest by hyperinflation include Venezuela, Zimbabwe, Sudan, Argentina, Iran, South Sudan, Liberia, Yemen, Angola and Turkey, the worldwide trend is one of declining purchasing power as well.
In Sweden—ranking only 102nd globally for inflation—the value of the krona (SEK) dropped to a 17-year low in April, arguably due to the Riksbank (Sweden’s central bank) delaying interest rate hikes. While some isolated indicators and speculation point to upcoming signs of strength based on Riksbank interest rate policy and the manufacturing sector, the macroeconomic trends remain questionable.
In the U.S., ranking just six spots above Sweden on the IMF chart, the dollar does not seem to be faring much better. According to London-based research group Emerging Europe, the June 19 tumble of the USD below the 97 handle was a result of the Federal Reserve’s dovish policy to maintain current interest rates. The argument being that many global and emergent markets were hoping for a shot in the arm via slashed prices. It noted:
“The dollar fell below the 97 handle on June 19, with the index falling as low as 96.57 during the day’s trading. This decline was a clear response to the Fed’s reiteration of their willingness to, at the very least, maintain interest rates at their current level. In all likelihood, those interest rates will be slashed to stimulate the global economy.”
Global Devaluation of Currencies
Compared to other countries, Venezuela’s inflation crisis may seem incomparably dire. The exponential rate of economic downturn dwarfs analogous statistics of other economies. Analyzing trends in currency devaluation in Sweden and the U.S., however, results in consistent devaluation data as well, just at a much, much slower rate.
From the perspective of sustained, macroeconomic movement, both the USD (the world’s largest reserve currency) and SEK are in a steady, decades-long decline. $ 1 in 1958 would be the equivalent of $ 8.86 in 2019. 100 SEK from 1958 would equal 1,284.14 SEK today.
According to research by Deutsche Bank, the inflationary decline of value globally (via a median global rate) stretches back for centuries. It has compounded in the 20th century by a large-scale departure from commodities and metals-based systems, in favor of increasingly credit and debt-based models. Jim Reid (of the same group) writes:
As the twentieth century progressed, pressure against precious metal currency systems rose, and many countries periodically suspended their memberships and loosened policy. Inflation ensued.
Venezuelans Turn to Bitcoin, But There Are Real Challenges
Attempting to weather the crash, some Venezuelans are using cryptocurrencies like bitcoin. Venezuelan economist Carlos Hernández claims that although conversion can be difficult due to state restrictions:
…you could say that cryptocurrencies have saved our family. I now cover our household’s expenses on my own.
Others don’t see crypto helping in a significant way.
“There are no official statistics of how many crypto wallets there are in Venezuela. There’s no way to know how many each person owns. What … is very clear is that beyond a couple of businesses that accept this form of payment and a few trusted exchange platforms online, there are no services for crypto users available in the country.” This is the view of Diana Aguilar, who only recently left the country in the midst of its collapse.
Hernández had been using the popular peer-to-peer trading website localbitcoins.com to facilitate domestic bank transfers. Statistics from the site detail a marked increase in exchange volume for the VEF/BTC pair beginning around 2018. Though opinions on what the best solution is differ, the bolivar has now become a real economic liability for Venezuelans.
What are your views on the global economic situation, and the information issued by the Venezuelan government? Let us know what you think in the comments section below.
Image credits: Fair use, Shutterstock
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The post Bitcoin and Black Market Fiat: Hyperinflation Crushes Venezuela as Global Devaluation Ramps Up appeared first on Bitcoin News.
Venezuelans are used to their currency costing less than the paper it’s printed on. Economic misfortunes and political upheaval place their country at the bottom of all inflation charts, year after year. The latest incarnation of the national fiat, Bolívar Soberano, has succumbed to the illness of all previous emissions – rapid depreciation. The government has just announced it’s releasing a 50,000 bolivar banknote. This is a little more than the minimum monthly wage but it can hardly buy you a decent meal in Caracas.
Central Bank Circulates New Bills With Higher Denominations
Banco Central de Venezuela has printed new banknotes of 10,000, 20,000 and 50,000 bolivar denominations which began circulating Thursday, June 13. With their release, the financial institution aims “to make the payment system more efficient and facilitate business transactions,” according to a statement published this past Wednesday. The bills, which will be introduced gradually, come to meet the requirements of the national economy, the bank noted.
The new emission comes less than a year since the socialist government announced the launch of a new redenominated bolivar, cutting five zeros off the national currency. Bolívar Soberano (VES), or “sovereign bolivar,” replaced the highly inflated “strong bolivar,” Bolívar Fuerte (VEF), which had itself replaced the original bolívar in 2008, cutting three zeros. Last year’s monetary reform was meant to ease cash shortages and restore confidence in the Venezuelan fiat money.
Authorities claimed VES will be anchored to the national cryptocurrency, the Petro, which is an oil-backed state-issued digital coin. Back then President Nicolás Maduro stated that “The economic reconversion will start on August 20 with the circulation and issuance of the new Sovereign Bolivar … a productive, diversified and sustainable economic model must definitely be born,” he insisted.
Inflation Expected to Hit 10,000,000% in 2019
However, as the economic conditions continued to deteriorate on the backdrop of escalating political clashes between government and opposition forces, the depreciation of the bolivar, which was the main reason for the redenomination, continued. As a result, inflation in the country exceeded 900,000% in 2018, according to the International Monetary Fund. Even the calculations of the Venezuelan central bank produced a six-digit figure – over 130,000%. And according to the CIA World Factbook, the CPI-based annual inflation rate has reached more than 800,000% in May 2019. The IMF projects that inflation will hit 10,000,000% this year.
When Bolívar Soberano was introduced in August 2018, the 500 bolivar bill was the highest denomination note. The largest 50,000 bolivar bill now equals a little over $ 8. That’s not a serious amount of money, even in a country where a large portion of the population lives in poverty and deprivation. The minimum monthly wage in Venezuela is set at 40,000 bolivars, or around $ 6.50. According to Trading Economics, it’s been raised twice this year and five times in 2018. Data compiled by Expatistan shows that a combo meal in a fast food restaurant will cost you around 25,000 sovereign bolivars, or $ 4. That’s almost two thirds of the minimum monthly salary.
Opposition Blames Regime for Inability to Control the Legal Tender
According to the Venezuelan opposition, quoted by The Guardian, the annual inflation rate reached a high of 1.7 million percent earlier this year. President Maduro’s administration has been blaming his country’s woes on U.S.-led sanctions and economic blockade, while his political opponents say it’s the government’s incompetence that has failed the oil-rich South American nation. Commenting on the release of the new banknotes, Juan Guaidó, opposition leader and self-proclaimed acting president of Venezuela, stated on Twitter:
The regime is unable to control the currency of legal tender: At the border, the Colombian peso is used; in the central region, the dollar or the euro; and in the south, gold. The dictator has shown that he does not govern and exhibits his total disconnection from reality.
“They took eight zeros off the bolivar, and it is no longer strong or sovereign. They invented an economic war, and they lost it,” added Guaidó who is a member of the social-democratic Popular Will party and was elected President of the National Assembly in January of this year. Shortly after his election as the speaker of parliament, he took a presidential oath as an interim president during a protest rally. So far, Guaidó has been recognized as the head of state by almost 60 countries including the U.S. and its partners in Western Europe. Meanwhile, traditional allies of the government in Caracas, such as Russia, China, Iran, and Turkey, voiced their support for Nicolás Maduro.
The inability of the executive power to tame inflation, which Juan Guaidó was talking about, has pushed Venezuelans to seek alternatives to the bolivar. Beside convertible fiat currencies such as the dollar and the euro, many businesses and ordinary people have also found them in decentralized digital coins. Bolivar’s persistent and rapid depreciation catalyzed the adoption of cryptocurrencies such as bitcoin cash (BCH) in everyday financial interactions. In the past couple of years, businesses accepting BCH have exceeded 200, according to the Marco Coino app but the actual number could be much higher as many more small merchants outside Caracas are adding bitcoin cash to their payment options.
What’s your take on the economic and political situation in Venezuela? Do you expect fiat hyperinflation and adoption of cryptocurrencies to continue to grow? Share your thoughts on the subject in the comments section below.
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The post Venezuela Issues 50,000 Bolivar Bill Amid Persistent Hyperinflation appeared first on Bitcoin News.
CARACAS, Venezuela (AP) — Venezuela's government has made a rare acknowledgement of the severity of the country's economic crisis by publishing the first economic data in nearly four years showing a severe contraction and soaring hyperinflation.
Before socialist Hugo Chavez swept to power in 1999, the colectivos were leftist activists working in some of Venezuela’s poorest slums. Himself a one-time leader of an uprising, Chavez was suspicious of the military, especially following a failed coup against him in 2002. Opposition members say Chavez armed and trained the colectivos to have a paramilitary force completely loyal to him.
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The United States on Wednesday suspended all commercial passenger and cargo flights between the US and Venezuela, saying the political unrest and tensions there pose a risk to flights, the AP reports. The announcement by the Department of Homeland Security affected a dwindling number of flights between the two countries,…
As opposition leader Juan Guaidó and his US ally puzzle over their failures to wrest control of the government, embattled President Nicolas Maduro is moving to enforce a new normal across Venezuela.
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