Final answer:
Venezuela's bolivar suffers from hyperinflation due to excessive money printing to cover budget deficits, which has led to a decrease in purchasing power and reliance on the U.S. dollar for transactions. High unemployment exacerbates the situation, and international investor confidence is deterred by the risk of loan defaults, causing economic instability.
Step-by-step explanation:
The disadvantages of using the Venezuelan currency, known as the bolivar, primarily revolve around its extreme hyperinflation. Since the government began covering its budget deficits by printing money in 2016, inflation soared to unprecedented levels, reaching 1,000,000% by 2018. This devaluation has led to a decrease in the purchasing power of the bolivar, causing many to struggle with acquiring basic goods and services.
Hyperinflation coupled with high unemployment rates, which exceeded 40%, exacerbated the economic crisis. As a result, many Venezuelans lost confidence in the local currency, leading to a surge in dollarization, with over 50% of transactions using U.S. dollars by 2019. This shift has its complications too, as it implies a loss of monetary policy control by the central bank, potentially leading to a reliance on U.S. fiscal health and policies.
The economic struggles of Venezuela also impact international relations, as the risk of defaulting on international loans deters international investors, which can precipitate a rapid withdrawal of funds, causing further economic instability.