The Washington PostDemocracy Dies in Darkness

Venezuela’s currency is dying


To paraphrase noted economic expert Obi-Wan Kenobi, many of the truths we cling to about currencies really do depend greatly on our own point-of-view.

Take Venezuela. The good news is that, if you look at it over a long enough timeline, its currency hasn't changed much the past month. The bad news, though, is that's because it's gone from being almost worthless to almost entirely worthless. And the worse news is that it's actually lost over a third of its value during this stretch.

Now, there's never been a country that should have been so rich been so poor as Venezuela. Indeed, it has the world's largest oil reserves, but has still managed to have the world's worst-performing economy. The International Monetary Fund estimates that its gross domestic product will end up shrinking 10 percent this year, and its inflation rate will reach 720 percent. Nor is this expected to get any better any time soon. Inflation is supposed to get up to 2,200 percent next year, and 3,000 percent the one after that.

This has been the result of a government that has spent more than it could borrow, and has borrowed more than it could probably pay back. The problem was that the Chavista regime bungled the state-owned oil company so badly that it didn't have enough money even when crude prices were high, and really doesn't now that they're low. So it's printed what it's needed instead, setting off what is currently the world's worst inflation. Which, according to black market rates, made Venezuela's currency, the bolivar, lose 99.1 percent of its value between the start of 2012 and the start of this October. In the last month, though, that's picked up to the point that the bolivar is now worth 99.4 percent less than it was five years ago.

That last part might not sound like much, but when your currency is down to 0.9 percent of its former value, dropping another 0.3 percentage points is a pretty big deal. It means that the bolivar has lost 36 percent of what little value it had left in just a month. Or, to put it in more practical terms, it now takes so many bolivars to buy even the most basic goods that storeowners are starting to save time by weighing money rather than counting it.

But this isn't just about Venezuela's economic collapse. It's about its political one too. In the last year, you see, the government has begun to lose legitimacy with even some of its diehard supporters. People are tired of its strategy of trying to make inflation go away by pretending that it has. As anyone who's taken Economics 101 could tell you, simply decreeing that prices won't go up and the currency won't go down won't work. Companies won't sell things for less than they cost. They won't sell things at all. Or, as it turns out, even stock their shelves—which is why the only thing Venezuela doesn't have a shortage of right now is lines. Food, beer, toilet paper, and basic medical supplies have all been casualties of this self-inflicted economic wound. It's made the country, as the AP's Hannah Dreier reports, the kind of place where a scraped knee can be a life-threatening condition.

This has brought Venezuela seemingly to the brink of civil war. That's because the opposition might have been able to win a big majority in last year's congressional elections, but it hasn't been able to launch the recall referendum it wanted against President Nicolás Maduro now that the regime-controlled electoral commission has disallowed it. The opposition, of course, called this a "coup," and threatened to march on the presidential palace before the Vatican stepped in to negotiate the political equivalent of a temporary ceasefire. The regime, meanwhile, is trying to solve its problems by finding new and innovative ways to stick its head even further in the sand. One of those is barring foreign journalists, including from the Washington Post, from entering the country. And another is its new radio show hosted by Maduro himself dedicated to salsa and the rest of the country's culture. The hope is that it will "multiply happiness."

That's why, as you can see below, the bolivar is falling faster than ever before if you look at it in absolute terms. The opposition doesn't want to wait until the 2018 presidential elections to get rid of Maduro, and the regime is determined to hold onto power and pretend that everything is okay. So it's getting harder and harder to see how this gets resolved peacefully, or at all. The collapsing economy, in other words, might lead to a collapsing society, which, in turn, makes the economy collapse even more—and, in the process, makes the bolivar get asymptotically closer to being completely worthless.

So what I told you was true from a certain point-of-view. Venezuela's currency hasn't changed much the last month, and has changed more than it has in any other single month before it.