#2. Destruction of the Local Currency
A national currency that is worth as much as monopoly money is a telling sign of a country that is on its way to becoming a banana republic. The rampant inflation that plagues these countries is caused by the excessive printing of money by central banks. Most of these countries are characterized by exorbitant government spending, and when the going gets rough, populist politicians turn to the printing the presses to finance these grandiose projects. The result is a completely devalued currency.
One need not look any further at the current state of the Venezuelan Bolivar to see inflation in full effect. Though officially listed at 6 Bs. per US dollar, black market exchange rates of the Bolivar are trading around 266 Bs. per dollar according to Cato’s Troubled Currencies Project. The bolivar is basically monopoly money at this point and with the way things are going, it may reach Zimbabwe levels of inflation.
As is life, when you entrust monetary matters to central banks.