Unbridled inflation tends to wreak havoc with economies, but one would think that if any industry were to benefit from rampant rising prices it would be that of paper currency manufacturers.
A country which is churning out billions of bank notes has got be good for the folks who run the printing press, right?
Leave it to Venezuela to botch that line of business, along with just about everything else.
As the country’s hard currency reserves sink to critically low levels, Venezuela’s central bank is paying foreign paper currency providers so slowly that the latter are beginning to back off on taking on additional contracts. In addition, it was disclosed recently that one company under contract to print money for the South American nation was owed more than $70 million.
Today Venezuela’s inflation is the highest in the world; it’s expected to rise to nearly 700 percent this year.
Adding to the nation’s fiscal difficulties is the fact that it takes a boatload of money for even the most basic transactions. Venezuela’s largest bill, the 100-bolivar note, barely pays for a loose cigarette at a street kiosk, according to Bloomberg.
Venezuela differs from other countries that have struggled with hyperinflation because it hasn’t reacted to raging prices by printing bank notes of astronomical denominations, such as the $100 trillion note produced by Zimbabwe not too long ago.
As inflation skyrockets and hard currency reserves plummet in Venezuela, paper currency manufacturers find themselves reluctant to commit sizeable resources as the nation’s ability to repay dwindles daily.
“The first signs of the currency shortage date back to 2014 when the government began increasing shipments of bank notes as wallet-busting wads of cash were already needed for simple transactions,” according to Bloomberg.
Today, Venezuelans spend hours waiting in line for consumer staples, lining up first at banks and cash machines, and often carrying money in backpacks and gym bags to pay for dinner out.
In 2015, the nation’s central bank selected companies in the United Kingdom, France and Germany to produce 2.6 billion bank notes. Before the delivery was even completed, the companies were approached by the central bank seeking even more notes.
UK-based De La Rue, which handles work for more than 150 nations, took the lion’s share of the order and enlisted Ottawa-based Canadian Bank Note Company to ensure it could meet a tight end-of-year deadline.
How big an order are we talking about?
Once printed, they arrived in Venezuela in dozens of 747 jets and chartered planes, according to Bloomberg. Under cover of security forces and snipers, it was transferred to armored caravans where it was spirited to the central bank in the dead of the night.
Even as the cash was still arriving authorities began planning for 2016. In late 2015, the central bank more than tripled its original order, offering tenders for some 10.2 billion bank notes.
But currency manufacturers began to grow concerned.
“According to company documents, De La Rue began experiencing delays in payment as early as June,” Bloomberg reported. “Similarly, the bank was slow to pay (Germany’s) Giesecke & Devrient and (France’s) Oberthur Fiduciaire. So when the tender was offered, the government only received about 3.3 billion in bids, bank documents show.”
Just last month, De La Rue sent a letter to the central bank complaining that it was owed $71 million and would inform its shareholders if the money were not forthcoming.
(Top: Even simple transactions require stacks of paper currency in Venezuela, thanks to massive inflation.)