Who should take the blame (or credit) for Cuba’s 6,900% inflation rate?
Before the answer is given, consider the history of fiat currencies, from Roman times to Kublai Khan, pre-war Germany, to recent popular hyperinflations such as Venezuela and Zimbabwe. The common denominator is always the same. In the case of hyperinflation, it is always the result of government intervention. Despite the history of currency debasement and collapse brought on through increases to the money supply, countries across the world still struggle with learning from the past.
According to Cuban news sources:
The Cuban government recognized that the economic reform known as Task of Reorganization has caused inflation of 60% in retail prices in shops and 6,900% in the informal market…
Pay attention whenever hyperinflation is mentioned in the news. Often the headline will discuss outcomes of the currency debasement, such as shortages being the cause, or other backwards ideas such as an inexplicable demand for all goods and services.
Earlier this year Reuters news inadvertently noted the beginning of Cuba’s problems, saying:
Many goods are simply no longer sold in peso shops despite billions more pesos now being in circulation.
There exists a lingering idea that the government’s failure is due to the lack of printing enough currency which causes supply shortages and hyperinflation, rather than the excessive printing as the source.
Cuba’s reorganization, which began in January included:
…an increase in prices, wages and the reduction of subsidies, and a consequent devaluation of the Cuban peso (CUP)…
Along with a minimum wage increase “by around 450%,” the heart of a hyperinflation is always the same; money printing followed by a realization that the government will not abate in its inflationary stance, causing the masses to want to buy anything perceived of value rather than hold their local currency.
Few events cause a unilateral increase in the demand for all goods and services simultaneously. Yet when billions of pesos suddenly come into existence, everything except the increase in pesos is considered the culprit.
True, US imposed sanctions hurt Cuba’s economy, since their trading is restricted. However, Cuba’s government could have mitigated this in many ways a long time ago. Making Cuba a free market economy and/or not debasing the nation’s currency would have done wonders for the island nation.
The world over, no one wants to stop money creation. All the while, everyone is surprised when currencies collapse. Consider what the Havana Times suggests:
In addition to all of this, US sanctions increased and the embargo became stricter, which has been hindering financial operations since 1962, and makes it impossible for Cuba to access credit from international financial bodies.
Why any nation would want access to credit from “international financial bodies” remains a mystery. The number of times a nation has defaulted on a loan from the International Monetary Fund (IMF) should be legend by now. A “new loan” from the IMF would increase Cuba’s money supply, add to their debt burden and carry the propensity to be defaulted, which could lead to austerity measures.
When the choice is between printing a local currency into oblivion, borrowing from clandestine supranational organizations or to refrain from doing either are compared, only one outcome emerges as a clear winner. A nation should always stop printing money because money printing has never led to a favorable outcome for any nation. Why the clearest path to success is always the path not taken remains anyone’s guess.
