I’m sure by now, given the constant media coverage, everyone has heard about the collapse of Venezuela’s currency, the Bolivar. The exchange rate is now a billion Bolivars to one US dollar, or something ridiculously low. The collapse of the Bolivar rivals that of the collapse of the German Reichsmark in the 1920′s, so we’re talking huge hyperinflation. Then there is also the narrative that Venezuela’s currency and economic collapse is entirely attributable to the policies of the presiding President, Nicolás Maduro, and his predecessor, Hugo Chavez. Even Vox, a left-wing publication, is advancing this narrative, laying Venezuela’s collapse squarely on the feet of Maduro. The evidence, however, shows that although these two leaders may shoulder some blame, the timeline of Venezuela’s collapse paints a somewhat different picture.

Here are some charts of the exchange rate:

One thing to notice–and this is completely unreported/ignored by any media–is how the exchange rate remains relatively stable from 2005 all the way until around mid/late 2012, which is when Venezuela begins to spiral into the crisis it finds itself in today. So that is a long time of stability.

Such stability is also observed with food scarcity, which remains stable until around late 2012:

From 2005 to 2008, the black market rate hovered around 2.5-1. Then over the next four years it fell to 10-1. Then in mid/late 2012, the bottom fell out. It took 3 years (from 2009-2012) for the exchange rate to fall from 5-1 to 10-1, but just six months if fall in half again from 10-1 to 20-1.

But wait–when one goes as far back 1991–yes, nearly 27 years–one again finds that the exchange rate is stable on PPI basis, only to ‘hockeystick’ around late 2012:

This graph shows that the currency began to decouple from the PPI in 2013, which is unusual and suggestive of speculation and crisis of confidence in the currency.

This puts a dent in the popular thesis that the policies of Chavez and Maduro are responsible for the collapse of the Bolivar and Venezuela. Chavez acceded power in 1999 yet the currency collapse didn’t begin in earnest until 2012. Some blame the fall in oil prices in 2014 for the collapse , which saw oil fall from $100 a barrel in 2013 to $35 in 2016, but oil prices crashed from $150 in 2008 to $25 in 2009, yet Venezuela’s economy recovered quickly in spite of that. As you can see, the currency fell in early 2008, but quickly recovered by 2009. Even after the financial crisis of 2008 it recovered. It’s hard to blame the government for Venezuela’s failure when for nearly 2 decades the country remained economically stable under such a government. That’s not to say it wasn’t without problems, but it was not nearly as bad as things are now and have been since 2013 (Wikipedia sets the demarcation of pre and post crisis at 2013).

Also, Maduro continued the economic polices of Chavez, so a change of policy under new leadership cannot be blamed for the sudden collapse of the currency.

So what happened…what was the spark? No one really knows, but sometime in late 2012, things got out of control and the government found itself unable to stabilize the currency as it had in the past. I suspect there was some sort of crisis of confidence that lead to a feedback loop–a sort of speculative raid that fed on itself and continues to this day. The falling currency disrupted imports and economic activity, leading to recession. In response, to stimulate growth, the government printed more money, leading to further currency collapse and perhaps exacerbating the problem. Soon it found itself in a vicious circle of more printing, more inflation, and more weakness. Due to anti-Western sentiment, it may have been unable to secure a bailout, which could have arrested the collapse. As for the empty food shelves that are commonly shown as evidence of the failure of Venezuela’s government, the empty stores may have more to do with people immediately spending their money, than a shortage of food. This is because hyperinflation makes the future value of money worthless, so people will immediately spend all their money rather than save, which results in stores being empty due to everyone spending at once. A similar ‘empty stores’ situation was also observed in Germany during its hyperinflation, although Venezuela’s situation looks to be worse.

Over the past 20 years, similar currency collapses (although much less severe) have occurred ..the Asian financial crisis of 1997, the 1998 Russian financial crisis, the collapse of the Rouble again in 2014-2015, the 2010-2015 collapse of the Greek Drachma, and the post-2012 collapse of the Turkish Lira (and also the 2000 collapse of the Lira, which in 2005 was converted into a ‘new’ Lira). All off these collapses occurred in countries that are less hostile to capitalism and more ‘westernized’ than Venezuela. The 1997 Asian financial crisis and the 2000 collapse of the Turkish Lira came as an especially big surprise because it was thought that neoliberal economic policies made such countries more ‘stable’, which proved wrong. These examples show that currency collapses may have more to do with speculation and a crisis of confidence that feeds on itself, than government.