How Venezuela's Currency Became Almost Worthless

 How Venezuela’s Currency Became Almost Worthless

Gavin Goold

As the war in Ukraine rages on, people talk about all of the economic problems with Russia and how their currency, the ruble, is becoming worth less and less. But this hyperinflation still doesn’t match that of Venezuela's currency and its economic impacts. The Bolivar, Venezuela’s currency was first produced in 1879 and because of its initial reliance on gold and silver for its value standards it was a very stable currency. But in 1983 that all changed as the government put it as a floating exchange rate (which means it is not tied to anything) leading it to be more volatile. This coupled with the fact that Venezuela's whole economy is based on oil and in 1986 a major collapse in oil prices led the Bolivar’s value to downturn, having annual double digit inflation rates for the coming years. 

Then in 1999 Hugo Chavez was elected president of Venezuela and set out to make the country more fair and equal for all as there was much disparity between rich and poor with there being all of the oil companies. This was attempted through the bolivarian missions which were effective at the time at lowering poverty and unemployment rates but the dark side of these government run reforms were that they simply couldn’t afford them. According to CNBC in 2012 the GDP of Venezuela was over 50% of just public spending. And to implement this plan Venezuela had to borrow a lot of money leading to it being in 2013 over 100 billion dollars in debt. 

This major loss of money also led to Venezuela not being financially ready for economic downturn or recession and sadly for them the economic downturn was about to hit as in 2014 the price of oil plummeted from once being worth around 100$ a barrel to in 2016 being worth 29.32$ at its lowest. This was obviously a huge blow to Venezuela’s economy as they almost solely relied on oil for profit. In turn, as now the president Nicolás Maduro at the time had almost no way to pay back the countries they had borrowed billions from, the only way in his mind was to just print more money. This is where the major problems really began as now inflation was rising at a rapid and unrelenting rate with no signs of stopping as Maduro always blamed other countries like the U.S. and adversaries like Juan Guidado for his country's problems instead of trying to solve them himself. And since 2019 Maduro’s legitimacy as president has been in major dispute as Juan Guiado has risen up and said that he is the legitimate president after what looked like to be rigging of the election to keep Maduro in power. 

That coupled with the open revolution against Maduro has thrown Venezuela into free fall. And in a 4 year span Venezuela’s GDP dropped 35%, a sharper decline than that seen in America’s Great Depression. This obviously led to a major decrease in standard of living for the Venezulan people as riots broke out and Venezuelas murder rate spiked leading it be one of the highest in the world at the time in 2017. This unrelenting plunge of the Bolivars value has led the country to basically stop trying to even track the inflation of it as it is estimated to have inflated over 2,000,000% by some. And basic goods like food and medicine became almost impossible to afford by the average citizen. Reverting back to the way Venezuela was in the 90’s but a whole lot worse for the average citizen as now any money they had made was worthless and crime was on the rise to gain basic supplies.

So what has been done to fix this issue? Well many Venezuelans have adopted and started just using U.S. Money as it is much more stable and actually valuable. Another attempt at stabilizing inflation is the Petro Venezuela’s crypto currency based on oil although that also has allegations of government misuse and corruption. But for the Bolivar, Maduro decided to take off six zeros from the end of it and call it a day as now 700,000 bolivars is now worth 7 for example an attempt that many economist say won’t just magically fix inflation but it seems to be the only thing Maduro is willing to do.

Inflation Percentage via BBC

Work Cited

  (www.dw.com), Deutsche Welle. “Venezuelans Try to Beat Hyperinflation with Cryptocurrency 

Revolution: DW: 16.04.2021.” DW.COM, www.dw.com/en/venezuelans-try-to-beat-hyperinflation-with-cryptocurrency-revolution/a-57219083.

Bloomberg.com, Bloomberg, 

www.bloomberg.com/news/articles/2022-01-14/venezuela-breaks-one-of-world-s-longest-hyperinflation-bouts#:~:text=On%20an%20annual%20basis%2C%20Venezuela,2021%20with%20inflation%20at%20686.4%25.

MCaruso_Cabrera. “Why Venezuela Is so Desperate, in 5 Easy Charts.” CNBC, CNBC, 

19 Oct. 2014, www.cnbc.com/2014/10/17/venezuela-economic-mess-why-venezuela-is-so-desperate-in-5-easy-charts.html.

“Venezuela Crisis: How the Political Situation Escalated.” BBC News, BBC, 12 Aug. 2021, 

www.bbc.com/news/world-latin-america-36319877.