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Venezuela Leads the World, for Inflation

By: Fergus Hodgson - @FergHodgson - Aug 6, 2013, 4:50 pm

A rapidly devaluing currency is a key indicator of a failing regime. However, rulers of such regimes tend to want to hide the embarrassment behind phony and fixed “official” exchange rates — not that anyone believes such flagrant dishonesty.

These declarations are not only dishonest, they reflect a juvenile view of economics, since they do nothing to address the underlying demand and supply factors. Thus, attempts to manipulate exchange rates inevitably lead to shortages of one particular currency, given a lack of supply at the dictated rate.

Like with so many other interventions, though, a black market arises as people seek to profit from the arbitrage opportunities. That is the basis for the Troubled Currencies Project, led by Steve Hanke.

By using black market exchange rates, he has prepared unofficial — accurate, as opposed to propaganda — rates of inflation for six of the world’s most problematic currencies: Argentina, Egypt, Iran, North Korea, Syria, and Venezuela.

Democratic Development Index: Latin America 2013

Country20122013Change
Average4.9754.8682%
Uruguay9.612104%
Costa Rica109.288-7%
Chile9.9629.039-9%
Perú5.6965.502-3%
Argentina5.6645.355-5%
Panamá6.0485.243-13%
México5.3735.062-6%
Brazil4.9075.0533%
El Salvador4.3624.4853%
Colombia3.9683.744-6%
Bolivia2.7333.6633%
Nicaragua2.8923.5112%
Ecuador2.8463.2511%
Honduras3.3283.169-5%
Dominican Republic2.9523.1156%
Paraguay3.8062.771-27%
Guatemala2.9832.716-9%
Venezuela2.4182.6499%
Of the notorious six offenders, Venezuela and Argentina come from the Americas, but Venezuela is both the worst in the world and comfortably the worst on the continent. The rate of inflation in line with the black-market price is six times the official rate, at 241 versus 40 percent.

vencurrency

Whether Venezuela is in hyperinflation is academic at this point — depending on how one defines the term. Regardless, such an unstable medium of exchange is extremely destructive to trade and is another tax on all people holding the currency.

Fergus Hodgson Fergus Hodgson

Fergus Hodgson was the founding editor in chief of the PanAm Post, up until January 2016, and he now studies finance at Tulane University in Louisiana and Francisco Marroquín University in Guatemala. Originally from New Zealand, he has also lived in Argentina, Canada, Colombia, Ecuador, Ireland, and the United States. Follow @FergHodgson and his Facebook page.