The value of Venezuela's currency, the Bolivar, has nose-dived too fast and has now reached a point where it's worth less than a penny on the US dollar.
The Bolivar tumbled against the US dollar over 700% during the past 12 months. A year ago, 82 bolivars were equal to one US dollar. Now, over 670 bolivars are equal to the US dollar.
The bolivar against the US dollar fell 737% from 82 on 15 August 2014 to 687 on 15 August 2015. The extreme inflation rate and drop in oil prices are taking a toll on the Venezuela's economy.
The nation's lifeline is oil export, which is badly hit by steep fall in oil price in the global markets. The debt repayment of $5 billion is due in October. With oil revenues dwindling by the day, Venezuela may face default this year.
The inflation rate in Venezuela rose 68% last year and is likely to be three digits this year, according to forecasts made by some economists. The country will be in major trouble in repaying the food imports bills if the current situation further continues. This situation makes life of a common man very harder even to buy small things such as napkins.
Recently, a photo posted on Reddit showed how bad things are in Venezuela. Reddit user Victorinox126 posted a photo showing a man holding empanada (a type of Venezuela bread) with two Venezuelan bolivar note as a napkin.
It demonstrated how bolivars have much less value than napkins. The said post is generating thousands of comments.
According to official Venezuela's bolivar-dollar exchange rate, using 2 bolivar note to hold an empanada would cost $0.31 (GBP0.20), but in the gray market, it's totally a different situation.
As per unofficial exchange rate, one US dollar is equal to 676.88 bolivars, according to dolartoday.com. This makes holding an empanada with 2 bolivar note would cost less than a third of one US cent.
The plunge of bolivar against the US dollar actually picked up from late 2014 and galloped through 2015 so far. Just three months ago, the situation was not much worse. The US dollar was equal to almost 300 bolivars in May this year. Now it's more than 600 bolivars to the US dollar.
Though official inflation rate is hovering at 68.5%, it's much worse in reality. Professor Steve Hanke at Cato Institute/ Johns Hopkins Troubled Currencies Project said: "The inflation in reality is over 808%."
The Parliament elections are due in December this year. According to market experts, though President Nicolas Maduro may not lose his position, but will have a tough time from the strengthening majority of the opposition. Since 1999, when Venezuela's constitution came into force, the opposition never had a majority.
It's estimated that about 70% of consumer goods are imported into Venezuela. Venezuela's economy is become worse by the day. For instance, Trinidad and Tobago offered to send tissue paper to Venezuela as payment to importing oil. Basic food products such as flour, milk, sugar, etc, are not easily available things in Venezuela.
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