Why are Venezuelans using banknotes for artistic purposes rather than buying necessities?
Updated: Sep 4, 2019
Using banknotes as a raw material is an example of the unintended consequence of a government printing too much currency. The excessive increase in bill printing has led to a new movement call “money-art”. The graphic designer Jose Leon claims that by drawing on devalued bills (photo posted in article) he manifests, in a creative and peaceful way, his disappointment with high Venezuelan inflation. In doing so, he also earns his living.
Venezuela is facing one of the highest fiscal deficits in the history of the world due to the mismanagement of the budget by the current government. More money has been spent than what was in the national treasury. So, to be able to finance the public deficit, the government has used ‘monetizing debt policy’, which is when the central bank aims to help the government service the public debt with newly issued base money.
A monetarist would explain this phenomenon by arguing that prices rise when the government increase the quantity of money in supply through printing new money. The increase in the money supply stimulate people to spend more and demand more goods and services. Firms then attempt to maximize their production and hire more workers or invest in extra capacity to make and procure those additional products. In addition, as resources in an economy are limited at any given moment, supply cannot change instantaneously and firms may not fulfil the excess of demand, the sum of all these factors put prices up creating inflation.
High inflation is noticeable when the level of prices is constantly increasing over a period of time. When inflation begins to increase dramatically there can be shortages of goods, long waiting lists and queues Also, creditors stop trusting the quality of central bank financial products such as liabilities and sell them at a significant discount. According to the International Monetary Fund, inflation rate in Venezuela is currently 1,360,000%. This situation is called hyperinflation which other countries has experienced but never at such as higher levels. A few case histories are Germany in 1920s, the United States in 1970s, Iraq in 1980s-90s, Zimbabwe in 2008, onwards.
The monetization of debt can cause the loss of value (devaluation) of banknotes and decrease in purchasing power of a nation's currency. More extreme cases arise when local money loses its function as a means of payment and is why banknotes in Venezuela are now more useful for money-art to make woven bags, belts, carnival costumes or being used as canvas for cartoons rather than for buying needs. As example, artisans struggling within the Venezuelan economy state that with 800 bills they can make a nice purse and earn $15 in international context with a huge profit margin. Alternatively, all they could just afford to buy for the value of those worthless bills would be half a kilo of rice.