Wednesday, January 18, 2017

Venezuela Prints Bigger Notes to Battle Inflation


Not long ago, the Venezuelan bolivar was a pretty stable currency. I remember something like one dollar equaled five Bolivares. I also remember that it was at that rate for quite some time.
“No mas” as Roberto Duran said while boxing Sugar Ray Leonard. The Maduro government has decided to play the inflation game by simply printing more bills, as we see in the New York Times:
Venezuela’s government began to issue new bank notes on Monday to replace the 100-bolívar bill, made virtually worthless by hyperinflation.
President Nicolás Maduro announced early last month that new notes would be issued to replace the old ones, a measure that promised to lighten the load for many Venezuelans, who must carry around bags of cash for even the simplest transactions.
The 100-bolívar note is worth about 2.8 American cents at Monday’s black market rate.
The new notes range from 500 to 20,000 bolívars, and the largest of the bills is worth about $5.60 on the black market…
 
Although the move was intended to make life simpler, there was chaos in mid-December when Mr. Maduro abruptly announced that the 100-bolívar notes would be removed from circulation. The reason, he said, was that organized crime groups were hoarding the 100-bolívar bills.
Venezuelans rushed to exchange their bills, only to find that banks refused to accept them because they had no larger bills to offer in exchange.
There were outbreaks of looting, and some people even burned the 100-bolívar notes, believing they were nothing more than paper after Mr. Maduro’s announcement.
Mr. Maduro was forced to relent and allowed the 100-bolívar notes to remain in place. He blamed his political opponents for the delay, as well as the United States, which, he said, had prevented cargo planes carrying the new bills from reaching Venezuela.
After reading this story, I exchanged a few Facebook messages with a friend in Caracas. I wanted to get a personal report on this chaotic situation.
He started off by telling me all of these worthless notes were making him a millionaire. He said that he never carried bills this big before socialism. I guess that Venezuelans have not lost their sense of humor.
Then he explained what life was like in a country where there are more paper money notes than goods and services. The answer is chaos, or what economists call too much money chasing too few goods.
Not a lot of fun living in that socialist paradise called Venezuela.
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