What is inflation and what does it mean when people say the currency in Venezuela is worthless?
In: Economics
So, imagine you are making juice using a can of frozen concentrate. You put in the tin of juice mix, and 3 tins worth of water. That juice you just made is the economy. The concentrate is the actual value of your economy, and the water you added is the dollars you have printed to represent that value.
Now imagine you need more juice… so you add more water. Sure, you have more juice, but it’s watered down; it’s less good. Same thing when a country needs to pay a debt so it prints more money, it waters down how much that money is actually worth because the underlying value didn’t change, just how thin it was spread out.
That’s basically what happens when a country’s currency holds no value. Either the country has printed more money than it is worth, or the value of that country has dropped (because trade partners see them as risky to trade with for a variety of reasons).
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