During my testimony in April, 2017 before the U.S. House of Representatives Committee on Foreign Affairs, I stressed that, to establish stability and turn Venezuela’s economy around, runaway inflation must be stopped in its tracks. After all, stability might not be everything, but everything is nothing without stability.
Since then, Venezuela’s inflation has skyrocketed to new levels, approaching hyperinflation. To grasp the magnitude of Venezuela’s inflation problem, take a look at the chart below. It shows the annual inflation rates (yr/yr) for chicken. Venezuela’s current chicken-price inflation is running at a whopping 771% annual rate. Notice, the surge in the chicken price inflation rate mirrors the spike in the overall implied annual inflation rate for Venezuela.
There are only two sure-fire ways to kill Venezuela’s inflation and establish the stable conditions that are necessary to carry out much-needed economic reforms. One way would be to dump the bolivar and officially dollarize the economy, an option I covered in a Forbes piece in August, “Stop Venezuela’s Economic Death Spiral – Dollarize, Now.”
A second method would be to adopt a currency board system. In such a system, the bolivar would become a clone of a reliable anchor currency, such as the U.S. …read more