Analysis of Venezuela’s Government Action against Hyperinflation

Abstract

During these years, Venezuela had the longest hyperinflation in history. Government debt rises as a result of both higher social benefits and falling oil prices. As a result of the government's massive liabilities, the government decides to create additional money, which causes hyperinflation. Thus, this paper discusses the three main Venezuelan government actions and their effect. The research shows that both price control and creating new currency did not result in a decrease in hyperinflation. The fixed exchange rate can decrease a small amount of inflation. However, it costs the government a large amount of money to sustain. In short, Venezuela can benefit from using other countries’ currencies and changing to its own currency when its economic condition is stable. Furthermore, current economic conditions are beneficial to Venezuela’s oil industry. Since US restrictions are no longer in place, Venezuela is free to pay back its debt and swiftly modify its own economic structure in order to bring its inflation rate to the target range. This study will help the government and related industries better understand how to create effective public policy.