What is Hyperinflation?

Venezuela, a country located in South America, has recently had to add three new bank notes due to hyperinflation. Venezuela has added the new 10,000 (Rs.114), 20,000 (Rs.226) and 50,000 (Rs.565) Bolivar – its local currency units – due to inflation at an unprecedented staggering rate of 815,000%. Thus, 500 Bolivars is not even enough to buy a piece of candy.

Hyperinflation is a phenomenon of continuously rising prices on day-to-day basis or even on hour-to-hour basis. It reflects a huge supply-demand imbalance in the economy – shortages of goods and services in relation to demand for them, and the latter being stimulated by excessive currency creation. Consequently, the value of money falls dangerously fast, causing the citizens to switch to more stable and reliable currencies such the US dollar or assets like gold or land.

Hyperinflation hurts everyone, but extremely severely the poor and those with fixed income earnings like workers or office goers. It makes all them poorer and poorer day-by-day.

Hyperinflation leads to local goods and services becoming very expensive – and non-competitive in the international market, thereby affecting exports adversely. Foreigners virtually stop buying goods and services from such country leading to a loss in trade earnings.

What do you think? Will Venezuela recover from the drastic inflation? Or is it on its way to bankruptcy? Stay tuned to find out!

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