Question

RESEARCH REPORT

Venezuela is experiencing the highest level of the hyperinflation of any country in the world, trending at an annual rate of over 10,000,000% in 2019. The country currently is in political, economic, and social turmoil with the highest crime rates in the world, food and drug shortages and a rapidly growing underground economy. The following issues should be discussed and analyzed in your report:

• What are the main reasons/root causes of hyperinflation in Venezuela? (250 WORDS)
• How are most citizens of the country dealing with this severe crisis? (250 WORDS)
• What are the main illegal markets that have developed and why? (250 WORDS)
• How can this problem of hyperinflation be solved? (250 WORDS)

Answer 1

In hyperinflation, prices of goods and services are so high that consumers cannot buy much with their money. Hyperinflation is common in all areas of the economy, which means that the cost of all goods and services is rising at about the same rate across the country. At worst in that country and its economy, the same prices and services in foreign markets also continued in the same way.

The following are the causes of Hyperinflation of Venezuela. : -

According to experts, the Venezuelan economy began to experience a recession in the first year of Nicolás Maduro's presidency. Potential causes of hyperinflation include heavy cash savings and overspending. In April 2013, the month of Maduro's inauguration, the annual inflation rate was 29.4%, only 0.1% below the 1999 level when Hugo Chávez took office. In April 2014, the annual inflation rate was 61.5%. In early 2014, BCV did not release statistics for the first time in its history, Forbes reported as a possible scam. In April 2014, the IMF said Venezuela's economic activity was uncertain but could continue to slow down, and that "independent economic policies led to higher inflation and the release of statutory funds". The IMF has suggested that "significant policy changes are needed to prevent malicious repercussions". According to economist Steve Hanke, the current Venezuelan economy has, since March 2014, experienced an inflation rate of more than 300%, an official inflation rate of about 60%, and an index of commodity inflation of more than 25%. The Venezuelan government did not report details of inflation in September and October 2014.

Growth in BCV funding has accelerated during Maduro's inauguration, which has pushed inflation into the country. The revenue of bolívar fuerte in Venezuela increased by 64% in 2014, three times more than any other economy seen by Bloomberg News at the time. Because of the rapidly declining value of bolívar fuerte, Venezuelans jokingly call it "bolívar muerto" ("dead bolívar").

Maduro has accused capitalists of speculating about driving high prices and creating a lack of basic necessities. He said he was fighting an "economic war", referring to the newly established economic measures as economic aggressors against political opponents, who, according to Maduro and his supporters, are the culprits in the global economic conspiracy. Maduro has been criticized for focusing on public opinion instead of addressing tangible issues warned by economists, or creating solutions to improve Venezuela's economic opportunities.

Decreasing bolívar rate: -

After the Chávez administration introduced tight monetary policy in 2003, there have been a series of five cuts in funding, disrupting the economy. On January 8, 2010, the government changed the official exchange rate from 2.15 bolívares fuertes (Bs.F) to 2.60 bolívares (imported health care goods and food items) and 4.30 bolívares (imported vehicles, petrochemicals, and electronics). On January 4, 2011, the fixed exchange rate was 4.30 bolívares for US $ 1.00 each on both sides of the economy. On 13 February 2013, bolívar was reduced to 6.30 bolívares in USD in an effort to combat budget deficits. The black market (or corresponding) value of bolívar fuerte and bolívar soberano has been significantly lower than the fixed exchange rate and other prices set by the Venezuelan government (SICAD, SIMADI, DICOM). In November 2013, it was almost one-tenth of the official exchange rate of 6.3 bolívares in US dollars. On 18 February 2016, President Maduro used his newly acquired economic power to reduce the official exchange rate of bolívar fuerte from 6.3 Bs.F per USD to 10 Bs.F per USD.

In September 2014, the illegal exchange rate for bolívar fuerte in Cúcuta, Colombia reached 100 Bs.F in USD. In May 2015, bolívar fuerte lost its value by 25% per week; the illegal exchange rate was at 300 Bs.F in USD on 14 May and reached 400 Bs.F in USD on 21 May. In July 2015, the bolívar fuerte plummeted again, reaching 500 Bs.F in USD on July 3rd and 600 Bs.F in USD on July 9th. In February 2016, the illegal rate reached 1,000 Bs.F per USD. In November 2016, the bolívar fuerte saw its largest price loss per month; the exchange rate reached 2,000 Bs.F per USD on 21 November 2016 and almost 3,000 Bs.F per USD a few days thereafter. On 29 November 2016, the exchange rate exceeded 3,000 Bs.F per USD. In the month leading up to 28 November 2016, bolívar fuerte lost more than 60% of its value.

On January 26, 2018, the government retired 10 Bs.F protected and funded by each USD exchange rate which was set at an all-time high following a sharp inflation. On 5 February 2018, BCV announced a 99.6% discount, with the exchange rate up to 25,000 Bs.F per USD. This has made bolívar fuerte the second most expensive currency in the world according to the official exchange rate, after the Iranian empire alone. Between September 2017 and August 2018, according to the informal exchange rate, bolívar fuerte was the world's least circulating currency. The official exchange rate stands at 248,832 Bs.F per USD on 10 August 2018, making it the world's most circulating currency based on the official exchange rate.

In June 2018, the government authorized a new exchange rate to buy, but not to sell money. On 13 August 2018, the average was 4,010,000 Bs.F per USD according to ZOOM Remesas.

Low salary: -

Venezuela's minimum wage has dropped dramatically in dollar terms during Maduro's tenure. It declined from about $ 360 a month in 2012 to $ 31 a month in March 2015 based on the weak legal exchange rate. In Venezuela's black market in the black market, the minimum wage was only $ 20 a month.

In April 2014, President Maduro raised the minimum wage by 30%, hoping to improve the purchasing power of citizens. According to the El Nuevo Herald, many economists have said the measure will be temporary as the legal price target is over 59%, and that wage increases will make things even more difficult for companies, as they are already facing financial constraints. In January 2015, the government announced that the minimum wage would be increased by 15%. On May 1, 2015, President Maduro announced that the minimum wage would increase by 30%, including 20% ​​in May and 10% in July. The recently announced minimum wage would be $ 30 a month for the black market price.

In August 2018, after the release of the new currency, the minimum wage was increased from 392,646 Bs.F to 180 million B.F (equivalent to 1,800 bolívares soberanos, or Bs.S) per month. Sales tax increased from 12% to 16%. The new salary was estimated at $ 30 a month for the black market price. It came into effect on 1 September 2018. The minimum wage was also increased to 4,500 Bs.S ($ 9.50) per month in November 2018 and then 18,000 Bs.S ($ 6.52) per month in January 2019, an increase of 300%.

In early April 2019, the minimum monthly salary of 18,000 BSs was equivalent to $ 5.50 - less than the McDonald's Fun Fee. Ecoanalitica estimates that prices will increase by 465% in the first two and a half months of 2019. In March 2019, The Wall Street Journal reported that "the biggest cause of inflation is a large printing press to finance public spending", reporting that a teacher could only buy 12 eggs and two pounds of cheese for a month's wages.

On 27 April 2019, President Nicolás Maduro increased the minimum wage from 18,000 Bs.S ($ 3.46) to 40,000 Bs.S ($ 7.69), according to the president's decision. In addition, President Maduro also announced the resumption of 25,000 Bs.S ($ 4.80) food vouchers. The new salaries came into effect on 1 May 2019. According to your local NGO, the new wage includes only one tenth of the cost of basic food products. The salary only allows Venezuelans to buy about four pounds [4 kg] of beef or two McDonald's Happy Meals. In mid-August 2019, continued bolívar soberano inflation reduced the minimum wage by 65% ​​from $ 8 per month to $ 2.80 per month and dropped to $ 2 per month by the end of August.

Government spending: -

In 2014, the El Nuevo Herald reported that due to a lack of funding, SEBIN reduced its duty to monitor "potential external threats" and called on Cuban intelligence services to return to Venezuela.

Venezuela Peoples Dealing With The Following Crisis:-

Inactivity: -

Unemployment has been rising in the years of hyperinflation and the level of 2019 has been seen as the highest in Venezuela since the end of the Bosnian War in 1995 and the largest agreement since the start of the Libyan Civil War in 2014, according to the International Monetary Fund (IMF). In January 2016, the unemployment rate was 18.1% and the economy was the worst in the world according to the crisis index. Venezuela has not reported official unemployment figures since April 2016, when the rate was 7.3%.

In October 2019, the unemployment rate reached 35%. At the end of the year, it was estimated that it would increase to 39% to 40%, and that 60% of economic participants belonged to the informal sector, which contributed to low incomes that caused many young people to relocate.

Problems of refugees and migration: -

Main article: The problem of Venezuelan refugees
Immigration to Venezuela has been relatively moderate under Maduro's predecessor Hugo Chávez. It is the year 2015 when globalization of about 30% of the population increased due to inflation in its economy, and that increased as the country entered into inflation. The Organization of American States (OAS) and the UNHCR have been classified as one of the largest immigrants in the history of the Western hemisphere.

According to the UNHCR, Venezuela's deteriorating political, economic, and human rights situation continues, making international support necessary. A recent report revealed that 4.8 million Venezuelans are registered among refugees and migrants.

illegal Markets Developed By Following Reasons :-

Government Policy:-

Venezuela's government policy was not enough to meet the basic needs of the people. Therefore, the situation of the country was deteriorating day by day. And that is why the number of illegal markets is increasing

Poverty and hunger:-

Growing poverty led to increasing hunger in the country. There was a time of famine everywhere and this led to an immoral market.

Education:-
Due to low quality education, the people here turned to crime. At the same time, crime was on the rise and this led to an immoral market.

The following can help prevent hyperinflation. :-

Changes in inflation statistics: -

In September 2014, BCV reportedly changed its methods of calculating inflation from the general price index in Laspeyres to the Fisher price index. This changed the June government's inflation rate from 5.7% to 4.4%, the July rate of 5.5% to 4.1%, and the August 4.3% to 3.9%. It was also reported in the August BCV report that "it was an economic war that hindered the normal course of operations and the distribution of valuable goods that the Venezuelan people wanted".

Presentation of high-level paper money: -

Plans 2 and 5 B. Currency notes are no longer available for distribution due to inflation in 2015, but remain in the official tender. In early December 2016, Bs.F's 100th note - Venezuela's largest financial institution - cost about US $ 0.23 in the black market. On December 7, 2016, a new series of notes (latest notes of notes) in the 500, 1,000, 2,000, 2,000, 5,000, 10,000, and 20,000 Bs.F editions were unveiled to the public.

On November 3, 2017, President Maduro presented a note of 100,000 Bs.F, which was similar to the 2007 series 100 Bs.F and 2016 - a series of 20,000 B. three more zeros after 100. The program cost US $ 2.42 for the black market exchange rates at the time of its release. By July 2018, the increase in hyperinflation had reduced its value by 99.9% to less than US $ 0.01.

Withdrawal of 100 Bs.F: -

On December 11, 2016, President Maduro, a former lawmaker, wrote in the law that 100 B.F. notes would be released within 72 hours of the alleged “figs” that allegedly led to inflation. With more than 6 billion 100 Bs.F notes issued accounting for 46% of Venezuelan withdrawals, Maduro allowed Venezuelans to exchange all 100 Bs.F notes in 100 BF coins or high-profile banknotes during blocking foreign travel to prevent the return of notes that were allegedly stored. The government justified the move by saying the US was working with criminal organizations to smuggle Venezuelan currency into European factories to cause a collapse, and that the government was thwarting the threat by withdrawing notes from its broadcasts. The Indian government took a similar step in November 2016, by withdrawing 500 and 1000 rupees from broadcasts that would reduce the shadow economy and reduce the use of illegal and counterfeit money to support illegal activities and terrorism.

Informal dollarization: -

Main article: Investing in replacement
Following the increase in international sanctions in 2019, the Maduro government abandoned the Chávez-based policies such as price control and monetary policy (imposed since 2003) that led to the country experiencing a recession. According to a study by economic consultant Econalítica, about 54% of jobs in Venezuelan in September 2019 were in US dollars. The value of the dollar trade has risen to 86% in Maracaibo. The study also found that almost all electronics sales are subject to the dollar, as well as the sale of clothing, parts for side cars and food.

In an November 2019 interview with Venezuelan journalist José Vicente Rangel, President Nicolás Maduro described the creation of the dollar as an "escape valve" that helps the country's recovery, the spread of productive power in the country and in the economy. However, Maduro said the Venezuelan bolívar would remain as a national currency.

If this helpful to you then like my answer !