Imagine that you make ice cream and you’re one of just a few suppliers of ice cream in your neighborhood. Since there are so few ice cream suppliers, you’re able to charge five dollars for a single scoop— and even more in the summertime! After all, people demand more ice cream in the hot summer months and are willing to pay more for your yummy treat. In the winter, however, there is less demand (customers aren’t buying as much of your ice cream because it’s cold!), and therefore you have to lower your price. You’re definitely not making as much money as you did in the summertime, and for that reason, you can’t buy as many of the things that you need, like food and clothes, as you did a few months ago. Now keep this in mind as we turn our attention to oil in Venezuela.
Venezuela’s economy is heavily dependent on oil—it’s their primary export. In other words, Venezuela makes a lot of money from selling oil to other countries. But in recent years, oil prices have dropped. Without the high demand for oil, Venezuela cannot sell its oil for the price it once did. Cheaper oil equals less income (or money coming into the country), and less income means Venezuela doesn’t have the money to buy as much imported goods like flour, sugar, and other basic supplies for its people.
As a result, Venezuelans are migrating to neighboring country Colombia. So many Venezuelans have migrated to Colombia that Colombian President Juan Manuel Santos started asking other countries for help.
There’s also hyperinflation. The price of goods in Venezuela is so expensive and the currency is worth so little, that it’s taking a lot more bolívar (or Venezuelan money) to buy things. So what is the government doing to turn its economy around? It’s introducing a brand new currency called the petro of course!
How is that going to help, you wonder? The petro would be linked directly to what Venezuela still has: oil and some precious metal reserves. The hope is that this new currency will attract investors from different countries wanting a piece of the Venezuelan oil reserve pie. After all, oil is still worth something, just not as much as it used to be. A new currency is innovative, but will it solve Venezuela’s economic problems?
What do you think?