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Hyperinflation is forcing Venezuela to print hundreds of millions of extra banknotes

September 18, 2013
Obsession
Debt
September 18, 2013

The more expensive things get in Venezuela, the more 100 bolivar bills Venezuelans are forced to carry in their pockets. And things are getting pretty expensive in Venezuela, which is leaving the country severely short on banknotes.

Inflation in the country hit 45.4% in August, well above much-feared hyperinflation levels. Since the bolivar was introduced in January of 2008, inflation has soared 323%.

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Venezuela annualized inflation

With prices of everyday goods on the rise, locals have been forced to carry around more cash, which they are doing almost exclusively with 100 bolivar bills ($15), the currency’s largest denomination. Demand for the bills is rising so sharply that Venezuela’s central bank can hardly keep up. In 2012, it put 272.6 million extra 100 bolivar bills into circulation—twice the amount it added in 2011, and triple that of 2010, according to local newspaper La Nación (link in Spanish).

In the past year alone, the bank has increased the number of 100 bolivar bills in circulation by 79%. One local recalled that, until recently, 100 bolivar bills were hardly used. “The bill was worth a lot, it was complicated to use because no one had enough change for it, but now if I want to buy bread, milk or cheese at any bakery I need it in my wallet,” he told La Nación. A mere five years ago, 100 bolivar bills accounted for 3% of the total bolivars in circulation; as of this January, the proportion was 23.6%.

The number of 50 bolivar bills, the currency’s second largest denomination, has also jumped. Together, 100 and 50 bolivar bills account for nearly half of all bills in circulation. Venezuela’s inflation woes are largely the result of failed government policies. Price and currency controls meant to slow the country’s inflation, which is the highest in Latin America, have instead exacerbated it, leading to shortages that have forced inflation higher.

With no end for inflation in sight—Venezuela’s president has argued that economic crisis is merely temporary—its central bank may be forced to churn out even bigger bills. Local economists have long been calling for the country to introduce 200 bolivar bills to ease the banknote bulk. Now there’s even talk of 300, 500 and 1000 bolivar bills.

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