About 3 million Venezuelans<\/a> \u2013 a tenth of the population \u2013 have fled the country. This is the largest human displacement in Latin American history, driven by shortages of everything including food as well as the Maduro regime\u2019s oppressive treatment of dissent<\/a>.<\/p>\n No wonder, then, that Maduro, who has just begun his second term as president, is now under considerable domestic and international pressure to call new elections.<\/p>\n So how did things get so bad? How did inflation become hyperinflation in Venezuela? And how do Venezuelans deal with it?<\/p>\n The cost of goods and the value of currency<\/strong><\/p>\n What we pay for goods and services reflects not only their cost of production but also of the value of the currency we buy them in. If that currency loses value against the currency the goods are sold in, the price of those goods goes up.<\/p>\n By 2014 the value of Venezuela\u2019s currency, the bol\u00edvar, and the prosperity of the Venezuelan economy, was highly dependent on oil exports. More than 90% of the country\u2019s export earnings came from oil.<\/p>\n These export earnings had enabled the government headed by Hugo Chavez from 1999 to 2013 to pay for social programs intended to combat poverty and inequality. From subsidies for those on low incomes to health services, the government\u2019s spending obligations were high.<\/p>\n Then the global price of oil dropped. Foreign demand for the bol\u00edvar to buy Venezuelan oil crashed. As the currency\u2019s value fell, the cost of imported goods rose. The Venezuelan economy went into crisis.<\/p>\n The solution of Venezuela\u2019s new president Nicolas Maduro, who succeeded Chavez in March 2013, was to print more money.<\/p>\n That might seem silly, but it can keep the economy moving while it gets over a hump caused by a short-term price shock.<\/p>\n The Venezuelan crisis, however, just got worse as the oil price continued to fall, compounded by other factors that reduced Venezuelan oil output. International investors began looking elsewhere, driving the value of the bol\u00edvar even lower.<\/p>\n In these conditions, printing more money simply made the problem worse. It added to the supply of currency, pushing the value down even further. As prices rose, the government printed more money to pay its bills. This cycle is what causes hyperinflation.<\/p>\n Playing the currency market<\/strong><\/p>\n Circumstances like these quickly make saving money in the local currency nonsensical. To protect themselves, Venezuelans started to convert their savings into a more stable currency, like the US dollar. This lowered the value of the bol\u00edvar even further.<\/p>\n The government responded by issuing currency controls. It set a fixed exchange rate, to stop the official value of the bol\u00edvar dropping against the US dollar, and made it difficult to actually get permission to exchange bol\u00edvares into US dollars. The idea was to stabilise the currency by effectively shutting down all currency transactions.<\/p>\n US dollars were still available on the black market, however. This meant going to any number of operators on the streets of downtown Caracas or asking some friend or to hook you up. As the crisis deepened, more and more Venezuelans looked to switch their bol\u00edvares into US dollars.<\/p>\n This increasing demand meant the black market price for greenbacks rose, creating a difference between the official exchange rate (set by the government) and the unofficial going rate.<\/p>\n With this came new opportunities. In 2014 reports emerged that groups of middle-aged women were crossing the border to use ATMs in Colombia. They could withdraw funds from their Venezuelan accounts as US dollars at the official rate. They could then cross back into Venezuela and exchange the dollars for bol\u00edvares at the unofficial rate, making a tidy profit. Government officials able to exchange bol\u00edvares for US dollars within Venezuela had their own version of this practice.<\/p>\n This pushed the price of US dollars up, and that of bol\u00edvars down, even more. As the crisis deepened increasing numbers of ordinary Venezuelans began to engage in the unofficial currency market.<\/p>\n Sometimes this took the form of taking subsidised Venezuelan goods like food across the border to sell. This earned the sellers foreign currency, but it also exacerbated shortages of goods within the country, driving prices up even further.<\/p>\n This does not mean Venezuela\u2019s currency crisis is the fault of ordinary Venezuelans. Illegal economic activity is largely a coping mechanism, a bellwether of the actual economy\u2019s ability to provide for people. When a government fails its responsibilities, it should be no surprise that people protect themselves through unofficial currency trading. This is exactly what big international investors do all the time, albeit through more official channels.<\/p>\n![\"\"](\"https:\/\/images.theconversation.com\/files\/257179\/original\/file-20190205-86233-6r2unm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip\")
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