After Venezuela ditched its multiple exchange-rate system and announced that it would introduce a new cryptocurrency (read: the petro), the hapless bolivar staged a bit of a rally. Many people concluded that the rally was the result of these two policy changes. While that conclusion might hold some water, it isn’t much.

The bolivar’s demand and supply fundamentals point to the source of the bolivar’s recent temporary strength. It’s tax season in Venezuela, and people pay taxes in bolivars. So, there has been a seasonal increase in the demand for bolivars. Instead of selling their ever-depreciating bolivars into the black market, many bolivars have been sent to the tax collector. With the tax season ending in March, the temporary surge in the bolivar demand has petered out. Not surprisingly, the bolivar is plunging again.

The Grim Reaper has taken his scythe to the Venezuelan bolivar. The death of the bolivar is depicted in the following chart. On the black market (read: free market), a bolivar is worthless, and with its collapse, Venezuela is witnessing today the world’s worst inflation.

As the bolivar collapsed and inflation accelerated, the Banco Central de Venezuela (BCV) became an unreliable source of inflation data. However, from December 2014 until January 2016, the BCV did not report inflation statistics. Then, the BCV pulled a rabbit out of its hat in January 2016 and reported a phony annual inflation rate for the third quarter of 2015. Nonetheless, the last official inflation data reported by the BCV is still almost two years old. To remedy this problem, the Johns Hopkins – Cato Institute Troubled Currencies Project, which I direct, began to measure Venezuela’s inflation in 2013. We measure the monthly and annual inflation rates on a daily basis. We measure. We do not forecast.

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