As the new Russian state struggles with the transition to a market economy, the need for radical monetary reform becomes increasingly urgent. The choice of reform is crucial, for it will largely determine Russia's future economic performance.
This week, Argentina released its February inflation statistics. Inflation spiked, again. Indeed, the official annual inflation rate jumped to 51.3%/yr. While this spike caught most observers off balance, it didn’t surprise me. In response to Argentina’s inflation surge, the Banco Central de la República Argentina (BCRA) did what all central banks with no credibility and junk currencies do. It jacked up interest rates in an attempt to keep the peso from plunging and generating more inflation. The lesson from this is clear: Argentina’s 22nd program with the International Monetary Fund (IMF) is not working.
The word “hyperinflation” is sprinkled throughout the press each day. We read that Iran is hyperinflating. The same is written about Zimbabwe and Venezuela, as well as a potpourri of other countries that are experiencing inflation flare ups. While Iran came close to a hyperinflation in the fall of 2012, it has never experienced an episode of hyperinflation. And, while Zimbabwe experienced hyperinflation episodes in 2007-2008 and 2017, it is not hyperinflating now. At present, Venezuela is the only country experiencing a hyperinflation. It’s clear that journalists and those they interview tend to play fast and loose with the word “hyperinflation.”
On February 11, Supreme Leader Khamenei and the mullahs celebrated the 40th year of Iran’s Islamic Revolution. With the exception of the Revolutionary Guard and “the beards,” as the hard core have been dubbed, few in Iran have much to celebrate. In the economic sphere alone, Iranians have been in a forty-year death spiral. And, let us not forget the estimated 750,000 Iranians who were slaughtered in the Iran-Iraq War (1980-1988).
Venezuela falls in the middle of the pack when it comes to hyperinflation magnitudes; it’s experiencing an extended hyperinflation—28 months and counting. This ranks Venezuela’s episode as the fifth longest in history. It is clear that the number one problem facing any new government in Venezuela will be to crush hyperinflation. If a new government solves the hyperinflation problem, it will gain immediate credibility. Then, it will be able to proceed to clean up the mess created during the Chavez-Maduro years. If a new government fails to smash hyperinflation and establish stability, it will face the public’s wrath and will be short lived.
Venezuela suffers from hyperinflation, the ever-tumbling devaluation of its currency. A full Venezuela rescue requires a legitimate head of state, which Venezuela now lacks. The sitting Nicolás Maduro and internationally recognized opposition leader Juan Guaidó both claim the presidency of the crumbling country. Maduro has blocked most foreign aid and has renounced most outside suggestions to reform the Venezuelan economy.
So Hanke, a 50-year professor of economics at Johns Hopkins University, is already dipping himself into the monetary fray, heading a project to sidestep authoritarian currency controls and deliver donated cryptocurrencies to Venezuelans as hard dollars. That project, titled AirDrop Venezuela, kicked off in January. Hanke partnered with Mexico-based smartphone app AirTM, an online platform connecting buyers and sellers of cryptocurrencies.