Why does Venezuelan government short the bolívar?
Venezuela is now suffering hyperinflation, which turns its currency, Bolívar, into worthless pieces of paper.
The sanction not only has a huge impact on the economy as a whole but also on Maduro's regime.
Why is it so?
Long term vicious inflation creates social chaos.
The power of tyranny comes from the military army.
A collapse of regime means Maduro's death.
Both Chávez and Maduro know the importance of not burning their bridges behind them. (Under Chávez presidency in October 2000, Chávez and Castro signed the Convenio Integral de Cooperación.)
How Venezuela's Regime Stays in Power?
Provision of perks and rewards to military and political elites.
Members of elite class receive more and better food and privilege.
The privilege includes US Dollars and private gain (Corruption).
To keep the money secure, they need one more thing: Transfer money abroad.
But their U.S. bank accounts were recently frozen because of Trump administration's opposition to Maduro's regime. (Source:CNN)
Now that the offshore assets were frozen, Maduro's popular support declines further.
Then, Maduro promoted 195 officers to the rank of general. (Source: NYTIMES)
But, where does the privilege come with?
This means a lack of hard currency triggers a rebellion.
Why is the country falling apart?
Because Bolívar is turned into worthless pieces of paper.
Currency depreciation = result of central bank going short the currency
Oil accounts for about 95% of Venezuela's export revenues, which is a dominant industry.
There is a huge deficit even though Venezuela government earned a lot of money through oil export.
In fact, only the minority benefits from the oil production.
The government needs seigniorage very much to keep power, resulting in printing more money.
For any country, deficit increase requires a dominant industry, which will squeeze margins of other sectors, resulting in malformation of economic structure.
If the president had helped finance other industries through the oil revenue, the country would not have been in turmoil.
What are the features of a bad economy:
1. Dictatorship (One party and one leader)
2. Brainwash of national glorification via total control of national media.
3. Limited Internet access (Government censorship)
4. No democracy
5. No votes
6. No freedom of speech
7. No human rights
8. Planned economy
9. Confiscation of private property
10. Military army enjoys an excellent social status.
11. Central Bank is state-owned (Total domination by the central government)
12. Over print money without transparency (High seigniorage)
13. Hide inflation via consumer price index manipulation
14. Capital controls
The ruling powers work for the benefit of just a few, ignoring the will of the vast majority.
The regime will change sooner or later due to its unsustainability.