3.Store of valueThirdly, the function of store of value is the most liquidity asset. In this case, money’s value has not performed. The value of Bolivar is not stable, people want to buy goods or services immediately when they get money to make sure that the value of Bolivar does not decline and they can buy some goods and services to for themselves. For example, Gonzalez’s wife buys the medical insurance to have the caesarean in the private hospital in next month, so Gonzalez’s wife could use this instead of money to pay for her health services. To sum up, this article indicates that in Venezuela, the functions of money does not performs very effectively and the value of money even is risked. To illustrate the function of store of value, according the
Balance (2016), the Dollar is the highest currency in the world; it is accepted for most international transaction. The Dollar’s value is stable; the International Monetary Fund shows that 63.4% of the known reserves in the world were held in dollars, in the second quarter of 2016. It means that US dollars performed effectively its function of store of value. Case Study 5: Inflation & the Money Market (word count 1000 words +/- 10%) 1. What are the reasons/causes of Venezuela’s inflation crisis? Enumerate and discuss 3, presenting data from reliable resources.(3 marks)Answer:According to IMF (cited in The Guardian 2016), Venezuela has the worst world’s negativegrowth rate -8%. Additionally, the unemployment rate has increased to 17% and also predicted to reach at 30% in the next few years. The main reason for Venezuela’s recession is inflation crisis in which it has the worst inflation rate recently, approximately 482% and also is predicted to increase 1,660% next year, according to the IMF (cited in Gillespie 2016). Rust (2016) stated that the inflation is the result of the lower oil prices, collapsed Bolivar and shortage of goods and services.Lower oil pricesRecently, Venezuela economic development mostly based on petroleum products. In 2014, oil made up 93% in $63 billion of export. At that time, a barrel of oil cost roughly $100. Many Venezuelan presidents utilized petroleum products and exports in order to develop the country’s economies. Nevertheless, The New York Times (cited in Rust 2016)reported that the price of a barrel of oil has fallen 70% compared to 2 years ago, each of it yields only $28.36, which is the lowest point in 12 years. It is a consequence of lifted authorizes on Iranian petroleum and expanded oil production in the United States, Canada and Iraq, petroleum costs have been driven around an immersed worldwide market. Additionally, as Gillespie stated (2016), the exports was $27 billion in 2016, decrease desperately from $75 billion in 2014.With lower oil costs, and lower incomes Venezuela has extraordinary trouble adjusting its foreign debt obligations, running its administration and paying for goods (Townhall 2016).
Figure 5. Adapted from FOCUS ECONOMICS 2016Collapsed BolivarThe government of Venezuela has 2 tier exchange rate system for its national currency