Venezuela’s Currency Worthless As Inflation Hits 1m Per Cent

The  economy of Venezuela, an oil exporter like Nigeria, has gone fully bonkers. Inflation projected to hit 14,000 percent this year, has been reset by  the International Monetary Fund   to a mind-boggling one million percent.

Prices and inflation are rising so fast that the highest denomination bank notes minted in 2016 are already practically worthless.The biggest of those, 100,000 bolivars, would have bought five kilograms (11 pounds) of rice in 2017, now it’s barely enough for a single cigarette.

“If inflation continues at 100 percent a month,” the new 500 bolivar note, which will be the largest following the currency redenomination on August 20, “will be obsolete by December,” said economist Leonardo Vera.

Currently, a pair of reading glasses can cost one billion bolivars (about $300 on the black market). It would require 10,000 of the country’s largest bank note to pay for those in cash.

Some shops had resorted to weighing bank notes to determine their value rather than arduously counting them out.

Unsurprisingly, cash has practically vanished and electronic transfers reign.

Currently, a pair of reading glasses can cost one billion bolivars (about $300 on the black market). It would require 10,000 of the country’s largest bank note to pay for those in cash.

But few people could afford to buy those glasses anyway given they cost 200 times the minimum wage of five million bolivars a month.

As the country grapples with a financial and humanitarian crisis, shortages of food and medicines, and failing public services such as water, electricity and transport, President Nicolas Maduro is planning to zapping five zeros off Venezuela’s almost worthless currency. In March he had  announced  that he would strike three zeros off the bolivar bank notes, before upping that to five.

The question is how will this latest drastic move help drag Venezuela into recovery?

Henkel Garcia of economics consultancy Econometrica said the latest move of redenominating the bolivar is merely a “partial acknowledgement” of the hyperinflation crisis but “needs to be accompanied by economic reform in order to stop it,” said .

Venezuela has already been down this road, 10 years ago when Maduro’s predecessor Hugo Chavez tried the same trick by deleting three zeros.

“The redenomination in 2008 was a failure because we still ended up with hyperinflation,” said Asdrubal Oliveros, an economist with Ecoanalitica, another economics consultancy.

“The redenomination was made without accompanying policies to combat inflation so it didn’t tackle the causes.”

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