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The World’s Worst Central Bank - Banco Central de Venezuela

Interest-Rates / Central Banks Mar 15, 2016 - 02:09 PM GMT

By: Steve_H_Hanke


The Banco Central de Venezuela (BCV) wins the prize as the world’s worst central bank – at least for the time being.  Venezuela’s annual inflation has been in triple-digit territory for more than three years.  As the accompanying chart shows, the implied annual inflation rate soared as high as 800% last summer.  Since then, inflation has fallen to its current 320% annual rate.  This is still well above the phony 180.9% annual rate reported by the BCV in December.

Yes, the BCV’s inflation number is phony.  The only reliable method for calculating inflation in countries where the rates are elevated, like Venezuela, is to observe changes in the black market (read: free market) exchange-rate data.  These changes can then be translated into implied inflation rates.  It’s nothing more than an application of standard purchasing power (PPP) theory.  When inflation is elevated, it is deadly accurate, and it is the method I use to estimate Venezuela’s inflation rate.

While the triple-digit inflation tragedy coincided with the rise of the late Hugo Chávez and his Bolivarian Revolution, serious inflation problems have plagued Venezuela – courtesy of the BCV – for over 30 years.  The accompanying chart makes that clear.

By Steve H. Hanke

Twitter: @Steve_Hanke

Steve H. Hanke is a Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore. Prof. Hanke is also a Senior Fellow at the Cato Institute in Washington, D.C.; a Distinguished Professor at the Universitas Pelita Harapan in Jakarta, Indonesia; a Senior Advisor at the Renmin University of China’s International Monetary Research Institute in Beijing; a Special Counselor to the Center for Financial Stability in New York; a member of the National Bank of Kuwait’s International Advisory Board (chaired by Sir John Major); a member of the Financial Advisory Council of the United Arab Emirates; and a contributing editor at Globe Asia Magazine.

Copyright © 2016 Steve H. Hanke - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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