The Venezuelan Crisis’ Elephant in the Room: the Central Bank

Prices soar when a monetary authority (in this case, the Central Bank) prints more money without a backup (fiat money). If there were a million Venezuelan bolivars to buy certain goods, and five more millions of bolivars are suddenly put into circulation for the same items, prices would skyrocket. Well, that is what the Board of the Central Bank of Venezuela (BCV) has been doing, as statistics show. On September 2, 2016, liquidity was around VEN $6.142 billion and reserves were around US $11.9 billion. Three years ago, Nicolás Maduro’s newly installed adminstration “only” had VEN $911 billion in circulation, and US $23 billion in reserves. In other words, 85 out of every 100 bolivars in circulation today was not in existence in September 2013. Moreover, dollar reserves have declined by half in the last three years, while goods available shrinking by 20 percent. It is not surprising that with this monetary frenzy, prices increased by 180 percent last year, and almost 500 percent this year. More…