Hyperinflation is anextreme case of inflation. A country is said to be experiencing hyperinflationwhen the rate of inflation exceeds 50% a month. Hyperinflation occurs when acountry’s prices of goods and services rise drastically but its supply of goodsand services don’t. This results in an increase in price for those goods andservices 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 inVenezuela is largely dependent on the oil sector. Oil, which makes up to 95% oftheir revenue from exports had been able to sustain Venezuela’s economy foryears. When the price of oil fell, the government couldn’t sustain the economy.Venezuela was also facing other crises like soaring food prices, brokenhospitals 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 1 Exploring the topic – Prosand ConsVenezuela isexperiencing the worst economic crisis of its history. The country is heavilyin debt and the inflation rate is soaring. We are going to delve deeper intohow hyperinflation occurred and how it affected the Venezuelan economy. Venezuela has thelargest 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 oilproduction in the country suffered from a bad market and insufficient fundsafter the fall of the oil price. This led to income falling more than 50%. To save the oilproduction, the government had printed more currency which resulted in itsdevaluation. The government also pressured the OPEC to raise the falling oilprices to help the economy. The oil production in Venezuela continued todecline and the country started to experience hyperinflation.
Source: Rystad Energy UCube/LuisColasante Source à Aslund, Anders (May 2, 2017). “VenezuelaIs Heading for a Soviet-Style Collapse”. Foreign Policy. Retrieved 4October 2017. 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.htmlSource à https://oilprice.
com/Energy/Crude-Oil/Venezuelas-National-Oil-Company-On-Its-Last-Legs.html During Hugo Chavez’spresidency the price food and medicines were reduced to make them moreaffordable for the local population. As a result, the products ended up beingmade below the cost of production. While this may have been good for the localswho now had access to cheaper goods and could now buy more goods, thisnegatively affected the companies who produced those goods.
They could not makeprofit anymore. Private companies were expropriated, Chavez restricted accessto the dollar and fixed the rate. Venezuelans could not change the nationalcurrency into dollars anymore and could not afford a lot of those goods anymore.Venezuelan companiesstopped producing their own goods when it became unprofitable. The governmentthen decided to use oil money to import products from abroad. Since the priceof oil had been falling, the economic system has been unable to maintain thesystem of subsidies and price control that functioned during the oil boomyears.
Source à http://www.aljazeera.com/indepth/features/2017/05/venezuela-worst-economic-crisis-wrong-170501063130120.html The inability to pay for imports and thedecline in oil revenues led to a shortage of goods like food and medicine. Thegovernment unsuccessfully tried to ration food and set their prices, but thisonly led to products ending up overpriced on the black market. The value of the bolivars Fuertes has plummeted since the country’seconomic crisis.
Nowadays €1 is worth around 12.62 bolivars Fuertes.Uncontrolled printing of base money and a dramatic decline in production arethe main reasons why consumers prices keep rising at unprecedent levels. Theimbalance between the abundance of nominal money and the lack of goods andservices in the marketplace triggers a drop in the real value of the bolivar andthe purchasing power of citizens, who due to their expectations of higherinflation rates in the future avoid saving in the national currency and rush tospend 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 Centerfor Documentation and Analysis for Workers (CENDA), a Venezuelan needs almosthalf of his or her minimum salary to cover an average household’s basic needsfor 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 Fuerteshas driven thousands of Venezuelans to take to mining bitcoin in order to payfor basic products.