“Legacy” Methods to Battling Hyperinflation

I’m lucky enough to be updating you all from Tamandiro, Costa Rica. On my flight down I was seated next to a great couple — without fail our conversation involved Bitcoin, don’t know how that happened (I’m sure many of you can relate). They now reside in Houston, TX but their families remain in Venezuela, a nation experiencing instability (politically and economically) following a decade of leadership from Hugo Chavez (deceased in 2013). I gained one fascinating insight (amidst several) from this couple in the course of our conversation that has my mind racing.

Given that the Venezuelan Bolivar (VEF) is currently in the throes of hyperinflation I felt fortunate to get a first hand account of the situation. It also made me think critically about how the people of nations experiencing hyperinflation deal with their circumstances.

bolivar

Source: Huffington Post

The fundamental tactic to combat hyperinflation is to convert the local currency into a safe haven store of value — today this is most often assimilated with precious metals, or for much of the world, the U.S. dollar. For those with capital controls or a reality where conversion opportunities are less accessible real estate is another means. What I learned is that many in Venezuela seek to store value in their homes. Rather than hold pieces of paper that will potentially be worth half as much 6 months from now as they are today — families invest their immediate earnings into their property.

It makes me wonder — despite being considered “poor” by first world standards due to the depreciation of their currencies would we see symptoms develop where their properties are relatively more developed and modern then the first world?  It would be seemingly ironic to own an unbelievable estate but by any other means be considered poor. Sadly this may become an increasing reality for parts of the world.

It is clear I don’t fully understand the degree to which this may be the case but will be spending some time this holiday researching this subject and hopefully connecting with individuals that experience this first hand. It becomes increasingly more relevant when considering developing currency crisis throughout the world (Argentina, Greece, Ukraine, Russia, etc.) It will be enlightening to have a better understanding of how people combat hyperinflation — I think if it happened to me I’d be fucked.

Happy Holidays!

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