by Jon Miltimore, Activist Post:
The lines snake outside the state-owned banks of Caracas virtually every day as Venezuelans wait to withdraw cash.
“We are only in line for transit fare,” a nurse named Karina tells a reporter as she waits to withdraw the maximum 400,000 bolivars.
Four hundred thousand bolivars might sound like a lot. It’s not. It’s roughly the equivalent of twenty cents.
“With that, you cannot even buy a caramel,” Karina says glumly.
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Nevertheless, Venezuelans have little choice but to wait in line to withdraw money—even if it’s a sum that won’t even buy a piece of candy. As Reuters reported on Monday, public transit stations in Venezuela cannot process digital payments, which means an exorbitant amount of physical cash—roughly three-quarters of all bolivars in circulation in Venezuela—is spent at public transit systems just so workers can buy transit fares to get to work.
“Paying transport fares is complicated because there is no cash,” Marina Ospino, a part-time salesperson and mother of two, told Reuters as she rode a bus. “And to run an errand, you need to have a fortune.”
NEW: Reuters report says Venezuela is literally running out of physical cash.
These lines form virtually every day outside banks as residents seek to withdraw a max of 400k bolivars – the equivalent of 20 U.S. cents – just to pay round trip transit fare to get to work. pic.twitter.com/x3N2sSkE13
— Jon Miltimore (@miltimore79) March 16, 2021
Venezuela’s cash crunch is in some ways difficult to fathom. After all, earlier in March Venezuela’s central bank announced it was introducing a new 1-million-bolivar bill to facilitate transactions.
“These new bills will complement and optimize the current denominations, to meet the requirements of the national economy,” the central bank said in a statement.
The problem is Venezuela’s printing presses can no longer keep up with the hyperinflation they precipitated. Inflation was 3,000 percent as of January, according to the state’s central bank, following years of hyperinflation that peaked at 10 million percent in 2018.
As a result, Venezuelan currency is almost useless, despite the recent announcement. (Those new 1-million bolivar notes are worth roughly fifty cents.)
Hyperinflation is not Venezuela’s only currency problem, however. Physical cash is literally disappearing in the country. Reuters reports that the amount of cash currently in circulation is roughly 2 percent of Venezuela’s total money supply, down sharply from 7 percent just a few years ago.
“Yes, it is disappearing,” President Nicolas Maduro said in an interview earlier this year, when asked if physical money was becoming more scarce. “For Venezuela that is a big advantage.” (Maduro did not offer details as to why this was advantageous for Venezuelans.)
Part of the cash vanishing act appears to stem from the fact that Venezuela can’t even obtain enough paper to print new banknotes.
“In 2020, Venezuela purchased two shipments of secure paper for cash printing from a Brazilian company, according to Import Genius, a firm that collects customs records for the import-export industry,” Reuters reports. “An effort to print bills in Turkey was unsuccessful, two people familiar with the matter said.”
The Perils of Hyperinflation
Venezuela’s plight is severe, but hyperinflation is not as uncommon as one might think.
From Weimar-era Germany to Zimbabwe in the 2000s under Robert Mugabe and beyond, modern history is replete with examples of hyperinflation that ravaged once prosperous economies.
In most cases, the immediate causes of hyperinflation are not difficult to identify: nations repeatedly injected large amounts of money into their economies. This was certainly the case in Venezuela, where its socialist system triggered vast amounts of public spending that were no longer sustainable following the global collapse of oil prices and the erosion of private industry.
Government spending more than tripled in Venezuela between 2000 and 2013, a period that was followed by a collapse in economic growth which saw the nation’s GDP fall by more than one-third between 2013 and 2017. According to The Economist, Maduro turned to the most obvious “solution” to his economic crisis: “unbridled creation of money to finance the budget deficit.”