Huge Plunge in Value for the Venezuelan Currency

Posted by Allison on 27 July 2015, 18:42

How much would a 100 bolivar Venezuelan note get you nowadays, do you think? Let’s put this into context before we answer that question. Each bolivar is divided into 100 cents and there are four coins denominated in cents and also a single bolivar coin. Aside from this you can get bolivar banknotes denominated in two, five, 10, 20, 50 and 100 bolivars.

So back to that question. Now you know a 100 bolivar note is the highest-valued note in Venezuela, how much do you think that would translate to in US dollars? The answer might shock you – at the time of writing it would get you $0.15 US dollars. Yes – that means 15 cents. If you transferred the 100 bolivar note into Great Britain pounds you wouldn’t get any pounds – you’d get 10p instead.

In reality there are two exchange rates currently in place in the country, which have been set by the government there. Add to that the black market rate, which is currently higher than those set by the government, and you have a recipe for confusion.

Basically if you were to take a 100 bolivar note to the black market traders they would give you a mere 15 cents or so for it. No one has any confidence in the currency and the country has experienced severe inflation since the end of last year. In reality Venezuela has been in trouble for a long time before that as well. According to Bloomberg the currency slid by around 33% over the course of a month recently.

Inflation has rocketed to an amazing 68.5%. At least that is what has been noted recently. At the time of writing it was thought to have shot up to 96.8%. To put that into some kind of context, the country with the second-highest inflation rate is Ukraine. This has a rate of 33.48% at the moment.

There have been periods throughout history where countries have been through even worse situations than this though. Hungary, Zimbabwe and Yugoslavia have all experienced it, and have come out the other side. However it can take some time for this to happen, and the troubles for the people in that country can be significant in the meantime.

There was a photo taken in Hungary in 1946 when the street was full of banknotes. People had ditched them because despite what they may have looked like, they were no longer worth anything. This was said to be the highest inflation episode in world history. This is known as hyperinflation because it goes beyond the rates usually seen when inflation starts to rise. Thankfully very few people have lived through such episodes, which can have a marked effect on everyday life. It will be intriguing to see how Venezuela copes in the months to come.