As you may know, inflation is a part of any fiat currency and is the amount of the nation’s monetary supply, or an inflation of said supply. A normal rate of inflation would be around 2% annually. A citizen will be compensated for this in a cost-of-living increase for their wages annually. Many nations will claim 1-3% inflation even when that isn’t the rate when a country is printing more money than they generate in actual production because they know a low rate is desirable. To illustrate the inflation in Venezuela, an extra-value meal at McDonalds in Caracas costs 125 Bolivar in September of 2013. As of last month, the same meal costs 245 Bolivar, representing an almost 100% inflation within about one year’s time.
“We raise our prices practically every month,” a McDonald’s employee said, speaking on condition of anonymity. “We’ve never raised them as much as this year.”
How does this affect the Bitcoin market? As we’ve reported recently, many Latin American countries are being introduced to Bitcoin as we speak. Argentina, Mexico, and Ecuador have seen enough economic turmoil with their fiat currencies to invest in Bitcoin directly, or look to start their digital currency with Bitcoin as a model. It is slowly dawning on smaller nations that a digital currency has many advantages over fiat currency. Issues like hyperinflation is a great way to segue into a digital future of money that doesn’t inflate at all. Bitcoin is anti-inflationary and can’t be produced to fund wars, debt payments or other government-created “costs of doing business.” The amount of Bitcoin is limited in total, and is produced less over time, not more. Any nation-state who’s currency collapses will see a portion of their population move to Bitcoin out of necessity.
“The deterioration of the currency outlook because of falling oil prices traditionally puts pressure on the dollar. That makes the government slash access to foreign currency (at the official rate) and forces people onto the black market,” said economist Pedro Palma. “That generates enormous uncertainty and further fuels inflation.”
This can be the first case of true hyperinflation since Iran in 2012. Zimbabwe is the most famous case in recent history (2008), going so far as to print a 100 Billion Zimbabwe Dollar denomination. They abandoned their version of the dollar in 2009, still have not recovered, and have not had an official currency since.
In Western society, hyperinflation is much more difficult to experience, since, in the United States, the global reserve currency status allows the government to essentially export inflation worldwide. The inflation is spread across the world as all nations use the currency (the US Dollar), and are forced to finance the increase in supply of dollars. This easily leads to hard feelings, bilateral trade agreements, and BRICS Development Banks by major nations worldwide to combat this economic abuse. World wars have started over less egregious economic practices.
Is Venezuela the next Zimbabwe? Is the United States, with their “Quantitative easing” the next Venezuela? Share above and comment below.
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