Hyperinflation: what can a country do when its money isn't worth the paper it's printed on?
What could you buy with one hundred trillion dollars? In the US, your life would be one long vacation on your private yacht or lounging in one of your five holiday homes. But if it's Zimbabwe dollars in your pocket, you wouldn't even be able to supersize your McDonalds.
Zimbabwe's currency has been in free fall for the last 15 years, leading to hyperinflation on a colossal scale. The money has been essentially worthless since 2009, when Z$100tn couldn't buy a bus ticket and the US dollar became the accepted national currency. Now, the Zimbabwe dollar has been officially abandoned by country's reserve bank, which announced that accounts “with balances of zero to Z$175 quadrillion will be paid a flat $5”. Today, we investigate an example of ongoing hyperinflation, what can be done to stop it and how it affects international money transfer markets.
Venezuela
Between the 1950s-1980s, Venezuela had South America's strongest economy, but now it's one of the weakest in the world. The bolívar is losing value faster than any other currency; in December 2014, inflation was at 69%. Although this year's inflation figures haven't officially been released, 200 bolívar is currently selling for $1 on the black market – much more than the 'official' rate of six to one. Expensive imports have caused a food crisis, with people queuing for days to buy bread.
Political instability, crashing oil prices and more than a decade of fiscal mismanagement have been blamed for the collapse, and there's no quick fix. Fundamental governmental changes will have to be made to rescue the currency and the country, which is expected to default on its debt this year.
Foreign markets
When a currency's value spirals out of control, investor confidence is lost. Nobody wants to hold onto worthless money and nobody wants to buy it. But for the currency chosen to replace it, global demand increases. Both Venezuela and Zimbabwe are, officially or unofficially, turning to the US dollar, which will likely drive its value up. That's great news for anyone sending money out of the US, but for tourists, a holiday to the States will be more expensive. If you're concerned about the effects of hyperinflation on currency exchange it's a good idea to speak to a forex broker, who will guide you through the latest market shifts.
