History shows that political unrest can destroy a nation’s currency. Hence, political or civil unrest in the United States could destroy the U.S. dollar.
Political unrest in other countries has led to hyperinflation and the destruction of fiat currencies. The worst example is in Venezuela, a nation with a government and constitution based on the U.S. system. Venezuela has an elected president and a National Assembly modeled on the U.S. Congress.
On Aug. 11, 2022, a U.S. dollar was worth 59,1736.302637 Venezuelan bolivars (the nation’s currency), X-Rates calculates. Between 2013 and 2022, Venezuela suffered from some of the worst hyperinflation in history. The Central Bank of Venezuela estimates that between 2016 and April 2019, the country’s inflation rate was 53,798,500%.
By 2018, it was cheaper for Venezuelans to use bolivars as toilet paper than to buy actual toilet paper, the Business Standard observes. The BBC claims that in August 2021, a cup of coffee cost 7.8 million bolivars, the BBC claims.
The Connection Between Political Unrest and Hyperinflation
Political unrest is one cause of Venezuela’s hyperinflation. Venezuelan politics are polarized and many citizens view Venezuela’s government as illegitimate. Currently, two men, Nicolás Maduro and Juan Guaidó, claim to be Venezuela’s president.
Guaidó’s followers claim Maduro stole the last presidential election and refuse to recognize him as president. Both Guaidó and Maduro declared themselves president. However, Maduro controls the government because he has the support of the military.
Foreign governments make the situation worse. The U.S. State Department, and many Latin American governments, recognize Guaidó as Venezuela’s “president.” While the People’s Republic of China and the Russian government recognize Maduro.
Political Unrest Destroys a Fiat Currency
The Venezuelan situation has some frightening similarities to recent events in the United States. In particular, a major political figure labeling an election illegal and a president illegitimate.
When examining Venezuela, many Americans will think of the slogan “Stop the Steal,” and recent stolen election conspiracy theories popular in the U.S. Several major US political figures, including former President Donald J. Trump Sr., promote those theories.
Political unrest ignited rioting and street fighting between supporters of the two rival presidents in Venezuela. The biggest casualty of the crisis is the bolivar. The BBC reports that street vendors in Caracas, Venezuela’s capital, only accept U.S. dollars.
The current situation in Venezuela is a little better. Bloomberg estimates the Venezuelan inflation rate fell to 88% in August 2022. However, it is now impossible to measure Venezuelan inflation because Maduro’s government refuses to publish economic statistics, hiding the true state of the nation’s economy.
Hyperinflation and Political Unrest
Hyperinflation and political unrest have a close relationship. Hyperinflation drives political unrest, which creates more hyperinflation.
On July 13, 2022, Sri Lanka’s President, Gotabhaya Rajapaksa, fled the country as mobs stormed the presidential palace. The president’s flight followed months of political turmoil and protests, along with hyperinflation.
Hyperinflation and a fuel shortage sparked protests which made inflation worse in Sri Lanka, The Washington Post reports. Observers blame Rajapaksa’s mismanagement of the economy for Sri Lanka’s problems.
Political Unrest in the United States
America has been experiencing political unrest and violence for the last two years. The unrest began with the George Floyd riots in 2020.
The Floyd riots included the burning of police stations in Minneapolis and Seattle and the looting of stores and wealthy neighborhoods in several cities. Then, on Jan. 6, 2021, there was the riot at the U.S. Capitol, in which a mob pillaged congressional offices and threatened to lynch leaders, including Vice President Mike Pence.
Tensions remain high in America. An Aug. 9, 2022, FBI raid on former President Trump’s Mar-a-Lago mansion led to calls for civil war on social media, NBC News reports. Some observers compared the FBI’s actions to those of Latin American governments, such as Venezuela’s.
On Aug. 11, 2022, an armed man tried to enter an FBI office in Cincinnati. CBS News identified the attacker, whom police killed, as a Trump supporter who threatened to kill FBI agents.
Even a group of historians who visited the White House on Aug. 10, 2022 warned President Joe Biden about dangers to democracy. The dangers include “a government by brute force,” and anti-democratic forces, The Washington Post reports. The historians compared the present-day United States to the era before the Civil War (the 1850s) and Fascist Italy.
Is Political Unrest Causing Inflation in the United States?
America’s inflation rate has been rising as political unrest and fears of violence increase. The U.S. inflation rate rose from 0.12% in May 2020 to 9.06% in June 2022 and was last measured at 8.52% in July 2022. Rising inflation shows the dollar has less buying power, a sign that confidence in the dollar is falling.
America is experiencing civil unrest that threatens the U.S. dollar. Recent history shows political unrest can destroy currencies and trigger hyperinflation. Hyperinflation and unrest are not inevitable in America, but they are possible.
Smart investors will prepare for hyperinflation by putting their money into dollar alternatives such as gold, cryptocurrencies, real estate, and foreign currencies.
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