Finance

Top 3 EM Currencies With Massive Devaluations

The Venezuelan, Argentinian and Zimbabwean currencies have no value at all

During the last few years, an irresponsible way of handling monetary policies has affected a large number of countries that are now having large devaluations on a regular basis and where citizens are losing their wealth. 

Generations of individuals are consuming the capital accumulated by previous generations due to central banks printing large amounts of coloured papers that have no real value. In this post, we will share with you which are three of the countries that have suffered the most with irresponsible printing and that have damaged their populations. 

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Venezuela

Venezuela was one of the richest countries in Latin America due to the fact it has large oil reserves. However, instead of becoming the UAE of Latin America, populist and socialist governments pushed this country into a total misery in the last few years. 

Nowadays, Venezuelans do not have the possibility to do anything with their local currency, which is the one with the largest inflation in the world. 

As you can see in the image above, the value of the currency has been falling each week, making impossible for Venezuelans to get access even to the most necessary things, including toilet paper or toothpaste. 

The foreign currency black market is one of the largest in the world in Venezuela and many products are now only acquired through informal markets rather than in traditional grocery stores. 

The inflation rates in the country have reached 1 million percent, according to the IMF. This shows Venezuela is the country with the largest inflation in the world. 

Argentina

Argentina is also an example of how a country that was rivalling with the United States in the early XXth century ended up with populist policies and destroying the wealth, institutions and culture of a country that was viewed as one of the most powerful in the world. 

Since the creation of the Central Bank in Argentina, the value of its currency, the ARS, has plummeted. The USD/ARS trading pair has been unidirectional. The currency issued by Argentine politicians has fallen to the lowest point in history. 

The Argentinian population voted for politicians that preferred to print more ARS and control low-class individuals rather than making it easier for Argentines to create value, high-quality services and become a developed nation. 

In 2021, the ARS inflation rate is expected to skyrocket to over 100% yearly due to the irresponsible policies taken during the Coronavirus crisis that has severely hit Argentina in 2020. Unless politicians decide to close the Central Bank in the country – as it happened in the 1990s – it will be impossible for the ARS to recover its value. 

Zimbabwe

In Zimbabwe, individuals are millionaires. Despite that, they are terribly poor. Being nominally millionaire (in a soft currency) will only make you poor in real terms. Zimbabweans have been experiencing the same history as Venezuelans and Argentinians, governments promised citizens to be richer just by printing coloured papers. 

The country is now one of the poorest in the world, alongside Venezuela and a few others. Poverty rates have skyrocketed. In Venezuela they reached 90% in Argentina they are expected to grow to over 60% and in Zimbabwe, the reality is similar to that in Venezuela. 

Printing money is going to generate a monetary disequilibrium that can only be solved in two ways. The first solutions would be to stop printing, thus generating a massive increase in poverty in the short-term but a better long-term future if politicians finally decide to stop printing. The second solution would be to continue printing and generating an endless crisis such as the one that is affecting these three countries, Venezuela, Argentina and Zimbabwe.

Conclusion

As we see, the cost of printing money without being generated by goods and services in an economy can only end with more destruction and poverty than before the printing began. Nowadays, in these three countries, the outlook for the future is certainly negative unless a deep change takes place in these economies. 

These three currencies, the Venezuelan Bolivar, the Argentine Peso and the Zimbabwean dollar are just currencies issued by governments that have no credibility and no knowledge on how monetary policy works. Due to this ignorance, populations in these countries are now suffering the consequences of several years of wrong monetary policies. 

Just time will tell whether these countries will change the course of their economies and follow the example of many other nations that are properly behaving and making societies richer in real terms on a yearly basis. 

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