As Venezuela Hits Hyperinflation, Maduro Prints Bigger Bills – And Bigger Problems

Dec 13, 2016

It’s official: Venezuela has entered hyperinflation. It is only the seventh country in the history of Latin America to have that dubious distinction. And no one’s seeing any light at the end of this tunnel.

Technically, hyperinflation occurs when month-on-month inflation tops 50 percent for 30 days straight. Oil-rich Venezuela got to that point earlier this month. But it’s already had the world’s highest inflation rate for years. Its 2016 annual inflation may rise above 500 percent.

Most economists blame Venezuela’s crisis on collapsed oil prices and the socialist economic policies of President Nicolás Maduro. Whatever the cause, Venezuela’s currency – the bolívar – is nearly worthless today. Its value has dropped more than 55 percent in just the past month.

With no good options left, Maduro has ordered Venezuelans to hand in all their 100-bolívar bills. That’s the country’s largest bill – now worth about 2 U.S. cents at the unofficial exchange rate. The government will replace them with 20,000-bolívar notes – about $5 at that exchange.

That might boost the bolívar temporarily. But economists say it’s likely to worsen the inflationary spiral – and leave Venezuelans with even less cash on hand for the holidays.

Venezuelans are suffering some of the world’s worst shortages of food, medicine and other basic goods. Maduro – who has also closed his country's border with Colombia temporarily this week to combat what he calls "mafia hoarding" of currency – blames the crisis on a U.S.-led economic conspiracy. But that's a claim his critics say is as weak as the bolívar itself.