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How can Venezuela overcome hyperinflation?


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How can Venezuela overcome hyperinflation?

Post by rocky on Wed 22 Aug 2018, 3:37 am

How can Venezuela overcome hyperinflation?

The situation of inflation in Venezuela is going from bad to worse, prompting the state to prepare to delete 5 zeros from the local currency this month, in a stumbling attempt to restore purchasing power .
In the 12 months ending June, inflation in Venezuela was 46.3 percent .
An analysis published by Bloomberg Opneon on the question of the possibility of stopping hyperinflation in Venezuela, saying that the solution is available, but President "Nicolas Madura" is likely to resort to .
The solution in the US dollar may be to do so since Madura may replace the Venezuelan Bolivar with the green paper. This may be achieved by converting all their non-value local currencies which will be disposed of and replaced by dollars of the remaining government stock at the daily informal exchange rate .
That could end the hoarding of foreign currency and restore incentives for savings and investment .
There are earlier models of using this solution, including Ecuador, which resorted to the use of the dollar in 2000 and contributed to the rapid suppression of inflation, which is accelerating significantly when it was jumping 50% or more per month .
Under normal circumstances, prices rise as a result of governments continuing to print money. In the absence of this, no one can increase prices because there is no new money to pay for goods .
A professor at Johns Hopkins University, Steve Hankey, an expert on the conditions of countries seeking to stabilize their currencies, such as Argentina, Russia, Zimbabwe and Argentina, and a proponent of the "dollarization" theory, said Venezuela should now go to do so .
There are thousands of things to do, but the only thing that needs to be done immediately is building stability. "Whoever does it will be a national hero ."
Francisco Rodriguez, the adviser to Maduro's rival Henry Falcon in last May's presidential election, agrees with the view that the immediate replacement of the dollar gives confidence in the battle against hyperinflation .
Still, one question arises: Why is Maduro unlikely to agree to this scenario? The main reason for this is to abandon a coin bearing the name of the Venezuelan editor and replace it with the currency of the United States, which is the "greatest enemy ."
Madura rejected the idea when his rival, Falcon, put it in the last election as an idea equal to the handover of sovereignty .
Venezuela could also end rampant inflation by resorting to other stable currencies such as the euro, but that still forces the state to abandon control of monetary policy and exchange rates .
For example, if Venezuelan oil prices fall sharply, the country will not be able to intervene by cutting interest rates or devaluing the currency .
The loss of flexibility is a problem for Ecuador and other countries that have adopted the dollar as a currency such as El Salvador and Panama, and for the different countries within the eurozone, which eventually reached a unified monetary policy through the ECB .
"The trend toward replacing the dollar with the bolivar will reduce the ability to grow economically because it will reduce competitiveness," said Asadropol Oliver, director of an investment firm in Caracas .
But putting an end to hyperinflation will not make it easier for Venezuela to pay for the import of food, medicine and other essentials. It will not ease the huge debt burden or even ease tension in the once prosperous country .
Economist Ricardo Houseman, a critic of Maduro and a minister of planning in Venezuela in the 1990s, called dollarization a "mirage" and believed priorities were to ease the state's grip on the economy and secure debt relief and foreign aid .
He added that the trend towards the dollar should be taken into account only if the state received aid, but "Hanki" believes that the lenders and donors will not intervene as long as inflation out of control .
But none of these strategies is possible as long as Maduro sticks to the presidency .
"You can not solve such crises with these culprits in power, " says Jeffrey Sach, an economist at Columbia University who helped Bolivia overcome hyperinflation in 1980 .
The dollar is already an informal pricing standard in Venezuela and is used illegally in many transactions. On August 2, the government abolished some currency controls, enabling companies and individuals to swap money through specific exchange companies and increase access to hard currency .
"This is too limited and too late," he said. "There is a crack in the way for Venezuela, and the rift can not be solved step by step."

    Current date/time is Tue 18 Dec 2018, 7:57 am