In the trade game we played last Wednesday, the values of the “Econo” and the Dollar
fluctuated a good amount. At times, the Econo was worth so little that it was valued at
one seventh of a 100 dollar bill. During that time, economic progress hit a near standstill
and virtually no money changed hands. This same process can be watched in real life
as well. Currently, Venezuela has an annual inflation rate of over 80,000% per year,
and as of 2017, 71% of the people living in Venezuela are below the poverty line. In our
trade game, inflation of the Econo happened because no one was willing to trade money
for it. In the real world, the causes of inflation are much more complicated. Venezuela
actually started out being a relatively wealthy country for South America, thanks to the
rich deposits of oil in the country, which account for over 90% of its total exports. In the
very early 2000s, oil prices were rising, and Venezuela’s leader, Hugo Chavez, decided
to increase government spending. But soon, a labor strike at the largest state-owned oil
company crippled exports and pushed Venezuela the first step of the way towards
hyperinflation. Throughout the next 10-15 years, oil prices continued to drop, lowering the
government’s income and causing them to overextend their limited budget. The Bolivian
reserve declined rapidly as a new leader came to power, Nicolas Maduro. His first attempt
to solve the problem came in the form of printing more money. This did not work and
worsened the downward economic slide. In 2014 the BCV or the Banco Central de
Venezuela stopped reporting on the level of inflation in Venezuela, adding to the mistrust
of the bolivar, and making it harder to get a good reading of the true level of hyperinflation.
During this time, many Bolivians exchanged their money for US dollars or other currencies.
This lack of trust in the bolivar further decreased its value. The government tried to cut down
on this using legal restrictions, but a black market sprung up and the exchange continued.
In 2018, the Venezuelan government tried to fix their issues by changing the currency used.
They tried to back up the new currency, called the Bolívares Soberanos with Venezuelan oil
reserves in an attempt to stabilize it, but this proved to be a failure as well. The situation in
Venezuela is getting steadily worse due to ineffectual regulation and an unstable authoritarian
government. It is clear that severely major changes will need to be put in place to solve this
issue.
fluctuated a good amount. At times, the Econo was worth so little that it was valued at
one seventh of a 100 dollar bill. During that time, economic progress hit a near standstill
and virtually no money changed hands. This same process can be watched in real life
as well. Currently, Venezuela has an annual inflation rate of over 80,000% per year,
and as of 2017, 71% of the people living in Venezuela are below the poverty line. In our
trade game, inflation of the Econo happened because no one was willing to trade money
for it. In the real world, the causes of inflation are much more complicated. Venezuela
actually started out being a relatively wealthy country for South America, thanks to the
rich deposits of oil in the country, which account for over 90% of its total exports. In the
very early 2000s, oil prices were rising, and Venezuela’s leader, Hugo Chavez, decided
to increase government spending. But soon, a labor strike at the largest state-owned oil
company crippled exports and pushed Venezuela the first step of the way towards
hyperinflation. Throughout the next 10-15 years, oil prices continued to drop, lowering the
government’s income and causing them to overextend their limited budget. The Bolivian
reserve declined rapidly as a new leader came to power, Nicolas Maduro. His first attempt
to solve the problem came in the form of printing more money. This did not work and
worsened the downward economic slide. In 2014 the BCV or the Banco Central de
Venezuela stopped reporting on the level of inflation in Venezuela, adding to the mistrust
of the bolivar, and making it harder to get a good reading of the true level of hyperinflation.
During this time, many Bolivians exchanged their money for US dollars or other currencies.
This lack of trust in the bolivar further decreased its value. The government tried to cut down
on this using legal restrictions, but a black market sprung up and the exchange continued.
In 2018, the Venezuelan government tried to fix their issues by changing the currency used.
They tried to back up the new currency, called the Bolívares Soberanos with Venezuelan oil
reserves in an attempt to stabilize it, but this proved to be a failure as well. The situation in
Venezuela is getting steadily worse due to ineffectual regulation and an unstable authoritarian
government. It is clear that severely major changes will need to be put in place to solve this
issue.
Sources:
https://www.scmp.com/news/world/americas/article/2156956/what-next-venezuelas
-broken-economy-1000000-cent-hyperinflation
-broken-economy-1000000-cent-hyperinflation
https://www.forbes.com/sites/garthfriesen/2018/08/07/the-path-to-hyperinflation-what-
happened-to-venezuela/#5eaa00c515e4
happened-to-venezuela/#5eaa00c515e4
I agree that there are similarities between the class's economic simulation and Venezuela's hyperinflation, but I believe what was going on in the simulation was hyperdeflation. This is because a small amount of money could buy a large amount of goods and services ($100 for 7 Econos). Hyperinflation in the simulation would be a large amount of money required to buy a single Econo (1 Econo for $700).
ReplyDeleteYes, if we are looking at the dollar in the trade game as being the only currency, this would technically be considered deflation. I was looking at the Econo more as a type of currency for households, rather than a finished good as it technically was supposed to represent. From that frame of reference, the Econo itself lost a large portion of its value, which is what I was initially referring to in the post
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