![]() US dollars were still available on the black market, however. The idea was to stabilise the currency by effectively shutting down all currency transactions. It set a fixed exchange rate, to stop the official value of the bolívar dropping against the US dollar, and made it difficult to actually get permission to exchange bolívares into US dollars. The government responded by issuing currency controls. This lowered the value of the bolívar even further. To protect themselves, Venezuelans started to convert their savings into a more stable currency, like the US dollar. Playing the currency marketĬircumstances like these quickly make saving money in the local currency nonsensical. This cycle is what causes hyperinflation. As prices rose, the government printed more money to pay its bills. It added to the supply of currency, pushing the value down even further. In these conditions, printing more money simply made the problem worse. International investors began looking elsewhere, driving the value of the bolívar even lower.Ĭurious Kids: why don’t poorer countries just print more money? The Venezuelan crisis, however, just got worse as the oil price continued to fall, compounded by other factors that reduced Venezuelan oil output. That might seem silly, but it can keep the economy moving while it gets over a hump caused by a short-term price shock. The sign in a store in Cucuta, the Colombian-Venezuelan border, reads: ‘We do not accept bolívares, only Pesos. The solution of Venezuela’s new president Nicolas Maduro, who succeeded Chavez in March 2013, was to print more money. As the currency’s value fell, the cost of imported goods rose. Foreign demand for the bolívar to buy Venezuelan oil crashed. From subsidies for those on low incomes to health services, the government’s spending obligations were high. These export earnings had enabled the government headed by Hugo Chavez from 1999 to 2013 to pay for social programs intended to combat poverty and inequality. More than 90% of the country’s export earnings came from oil. If that currency loses value against the currency the goods are sold in, the price of those goods goes up.īy 2014 the value of Venezuela’s currency, the bolívar, and the prosperity of the Venezuelan economy, was highly dependent on oil exports. What we pay for goods and services reflects not only their cost of production but also of the value of the currency we buy them in. Alberto Valdes/EPA The cost of goods and the value of currency A huge diaspora of Venezuelans is now spread throughout Latin America. Venezuelans living in Santiago, Chile, protest against the regime of of Nicolás Maduro on February 2.
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