Inflation and currency devaluation pose a threat to a number of countries, but there are few places where it’s more prevalent than in Venezuela. Their currency, the bolivar, has lost so much value that the bills it takes to pay for basic purchases are hardly worth counting anymore. Instead an increasing number of retail establishments are choosing to weigh the money.
Venezuela: What Cash Problem?
This is hardly the first time in history that a nation’s currency has become so devalued. Weighing money was a practice in Germany in between the two world wars, as well as Yugoslavia in the 1990s. Basic purchases require giant bags stuffed with cash. Affording basic necessities is a problem for many, and even for those who have enough wealth, simply finding enough bills to make the transaction is a problem.
The immediate issue could be fixed by simply printing money in higher denominations. Inflation and currency devaluation would still be rampant, but at least purchases could be made with reasonable amounts of cash. However, the Venezuelan government refuses to do so—because that would mean admitting that there’s a problem.
They don’t even publish consumer price data on a regular basis. Rather, they largely ignore the issue. Printing larger denominations of currency would be a sign of weakness and a clear indicator that their country is in trouble financially. Eventually, they’ll have no other option, but they’d like to delay that moment as much as possible.
A Cash-Based Society
Another simple solution for many consumers is simply to pay for things with credit or debit cards. Unfortunately, this doesn’t work all the time. Around a third of Venezuela’s workforce is paid entirely in cash, including cab drivers, street vendors, a number of civil service jobs, and more. In addition, Venezuela’s state pensions to retirees are paid in cash.
The enormous number of bills can be taken to the bank and deposited, after which the consumer can use a debit card, but that still means having to haul it from one place to another on a regular basis. This is not only inconvenient, but dangerous. Carrying that much cash around attracts the attention of robbers, and the farther you have to travel with the money, the more vulnerable you are.
This currency devaluation is not only bad for Venezuela, but for the U.S. as well. A number of major corporations in America do business with the South American nation, and with their economy doing so poorly, and cash so difficult to deal with, many of those companies are suffering. Some, such as Clorox, have opted to stop all dealings with the country, while the Ford Motor Company is no longer including them among its core operating results.
What to Do
It’s clear Venezuela has a problem, and a permanent solution doesn’t seem imminent. Could the U.S. experience anything like this? It’s doubtful the government would let it get quite to that point, but when the dollar bubble finally bursts, a significant devaluation of our currency seems likely.
It’s important to be prepared for such an eventuality, so even if the value of the dollar plummets, your own savings remain intact.