Cash chaos in Venezuela after banknote withdrawn
aljazeera.com
aljazeera.com
Around 30% of the population here doesn't have a bank account to deposit the Bs.100 bills. Also, many of the small bodegas don't have points of sale to take debit cards.
This is just another round of the improvisation game Maduro plays with the economy here. They promised the new bills would be out yesterday and they are nowhere to be found.
Some people might have some savings in dollars or euros which they exchange at the black market rate to get bolivares and live off that. $100 could be used for a family of 2 or 3 to live for a month.
So the import lifecycle is this: (1) Political insider secures import contract and exchanges bolivars for dollars to buy goods abroad. (2) The goods are never purchased, but instead go 'missing' in transit. (3) The dollars, now supposedly lost to theft, are exchanged back to bolivares at a much higher rate. The rate of return on this round-trip is on the order of 1,000%.
Although it's unclear how much money the government is printing and spending directly, it's this process of exchanging cash into more cash without actually bringing in any products that drives the inflation. The amount of cash in circulation skyrockets but the goods in circulation stay the same, or fall, and so prices need to rise. This process also has the devastating flaw of making it more profitable to feign the import of food than to actually do it and so the items most heavily favored for import by the administration are, in fact, in the shortest supply.
https://www.bloomberg.com/news/articles/2015-02-19/venezuela...
This math is not checking out for me. xe.com and Google put the exchange rate at 1 VEF = ~ 0.10 USD. That would make a 100 bolivar note at around $10, not 2 cents.
What am I missing?
Edit: Ah, ok so it looks like the "bolivar fuerte" (VEF) replaced the original bolivar (VEB) at a rate of 1/1000 due to hyperinflation. I guess the "100 bolivar" note they're referring to is the original.
Edit again: Nope, looks like this is the black market rate as georgeglue1 mentions. Crazy.
So what makes it "black market" outside of Venezuela? Can Venezuela impose their desired rate on money markets in other countries? If I went into a bank in another country and purchased 100 bolivar, would it cost me 2-3 cents US? Or $10?
I always thought foreign currency was an asset like any other that you could trade at rates determined by the market.
Care to elaborate?
You sell $5000 at the black market rate of Bs.2000 per dollar, buy $1mm at the official rate of Bs.10. Repeat ad finitum,until you drain the country's reserves. But no worries, we still produce oil and it's the solution to all our problems!
Then, the oil price drops in an economy that has no industries (because it's so cheap to import everything at the official rate, who would want to risk producing anything??) and does not produce anything other than oil. So the govt runs out of money to import food, toilet paper,etc. So people go hungry, you get the highest inflation in the world,etc.
Add to that, a "socialist" president that in order to fight for the poor, confiscates the little industries, farms, etc we had. No one in their right mind wants to bring a cent to invest here.
The official exchange rate means you're earning 100 bucks a week, unofficially you're earning about 10 cents.
Government caps bread prices at 10 bolivars per loaf, to make sure capitalists aren't gouging people.
Oddly enough, people stop baking bread, as it costs them more money to bake the bread than the revenue they make when they sell it.
Extend that to almost every other necessity of life that has been price controlled, and you can see why there are massive shortages.
EDIT:
This works to some extent in a closed economy, with no imports and a surveillance state. Once you start relying on imported goods to produce, you're in trouble. Your foreign suppliers want hard currency and will laugh in your face when you tell them what you think the exchange rate is.
People who haven't taken some time to understand microeconomics will look at a fiat currency and say "Gee, if I can say this is worth what ever I want, I'll say its worth 10 units", and since they are just paper and ink, if I need a 10 million units to buy something, I'll just print a million of these notes out." And when you do that you get any number of examples of economies that got trounced.
The reason is that while there isn't any restriction on naming something, if it tender for trading goods and services it must have two properties, first it is has limited supply (for reasons that get explained in macro economics) and it has to be hard to duplicate (which is needed to keep the supply in check).
So consider the farmer, the butcher, and the feed store owner. The farmer has to buy feed for his stock, he gives units to the feed store owner in exchange for feedstock. The butcher needs animals to butcher for selling to people who are eating them, so he gives units to the farmer for his stock. The feed store owner is feeding his family so he gives units to the butcher to buy meat to put on the table.
The units (currency) are all traveling in a circle, farmer -> feed store owner -> butcher -> farmer -> feed store owner -> butcher -> farmer ... they don't "mean" anything they are just markers being traded through the economy as it operates.
You tell the butcher what they have to charge, or limit the number of units a farmer can ask for his stock, and then the market can't adjust to the changes in expense. It breaks down.
Note that price controls work iff you can dictate prices for each transaction - the price for meat and feed. Actually, in this case the feed store owner muddies the waters, as he is not a direct source of production. If you just think of a cow farmer selling cows to a farmer in exchange for grain, and the prices for the cows to grain is fixed by the state, everything works for a while.
Until the farmer realizes that he needs fertilizer for his fields to produce grain. He goes to the fertilizer producer, who is NOT under the state, and attempts to buy the fertilizer for the state-set price.
That price is either going to be too high, in which case the fertilizer producer sells the farmer all he needs and more, or the price is going to be too low, in which case the farmer gets none. By "too high" and "too low" I mean the price of fertilizer set by the market, the price where you can both buy and sell fertilizer.
"Black market" is just the phrase used for situations like these; another word would be the "actual market".
> Can Venezuela impose their desired rate on money markets in other countries?
No. They can't even impose it on money markets within their country.
> would it cost me 2-3 cents US? Or $10?
You can certainly find people who'll accept $10 to give you 100 bolivars; the trick is finding someone who'll accept 100 bolivars in exchange for $10. And no, you cannot find a bank anywhere in the world that will do that.
> I always thought foreign currency was an asset like any other that you could trade at rates determined by the market.
It is. However like any other asset, a seller can offer it at a discount to particular groups. If I own a Mercedes dealership, and I decide to sell a couple of new, top end Mercedes to my friends for $5k each, that doesn't mean that Mercedes now cost $5k; it means I have given a couple of my friends an extremely valuable gift.
Similarly, some friends of the Venezuelan government can purchase strictly limited numbers dollars from the Venezuelan government for a fraction of their actual cost. That's a crude but effective way to bribe friends of the government, but it doesn't change the actual cost of the dollars. (And note that the amounts on sale have to be limited, because the government has to pay market rates to replace them.)
The real (black market) rate goes down so fast, it looks like this:
One such project working on this is MakerDAO. Not the same as backing your crypto-currency with gold hidden in the jungle, but it is backed by assets.
>I don't know that an accessible, anonymous, global, hands-off libertarian digital currency is the ideal situation.
I agree. I think the solution that is likely to work will have a broad base appeal.
The fractional reserve system, which injects money into the economy as the economy grows, is an attempt to create that stability. But you'll never create a workable fractional reserve currency that isn't intimately tied with government regulations.
The most you could probably ask for is a digital currency that wasn't subject to the whims of politicians and central bankers.
- Fixed exchange rate
- Free movement of capital
- Ability to conduct your own monetary policy
The world community really needs to figure out how to deal with failed states. And the real, live humans that suffer in those states.
The list goes on: Venezuela, Syria, Libya, North Korea, etc.
2. Establish e.g. EU humanitarian intervention taskforce. And the same for ASEAN? And maybe even North America when it's ready to re-join the global community again? [ :) ]. I think the key is to de-couple things from Russia and China at least until they themselves begin to be responsible citizens in the global community.
So perhaps the issue we see now is that we have lots of humanitarian hotspots around the world and we need another organization than the UN to deal with it? Can they co-exist?
Even North Korea has been admitted to the UN. In fostering discussion and enabling rational diplomacy between nations, it has been a success.
Oh, and the UN is a red herring. NATO does as NATO wants - UN approval is only useful in improving their domestic cases for going to war.
No, Syria wasn't invaded by NATO - instead, NATO poured, and continues to pour oil on that fire, because instead of making the situation better, it would rather fight a proxy war with Russia.
Despite our best efforts at supporting the rebel groups, and bombing Assad, he's still in power. Given that, I think it's reasonable to conclude that had the conflict been left to resolve itself, he would have won fairly quickly - or at least, by now, most of the country would be under his control, as opposed to a five-way horror-show. We'd also probably be seeing a lot fewer beheading videos on Twitter.
NATO's perspective on the whole conflict, start to end, was not humanitarian - but rather as a question of "What can we do to stick it to the Russians, and topple Assad?"
Quick check: what is more valuable: one men or one hundred?
What those people need is humanitarian aid, not billions of dollars in Tomahawk missiles and AR-15s.
You are not passed my quick check, so I assume that difference between us is fundamental. See [1] if you want to understand West.
Not necessarily disagreeing that UN is dysfunctional, but your proposal is not constructive (and biased).
This is the point of the UN. Major powers get to block things with a vote instead of with force.
North Korea is a failed state by design.
https://en.wikipedia.org/wiki/Libyan_Civil_War_(2011)
https://en.wikipedia.org/wiki/Course_of_events_of_the_Syrian...
Everybody who is not an autocrat themselves wanted to see Gaddafi and Al-Assad go, once it looked like it could happen... But the rebellion was initially homegrown, and that's the point. The countries were not stable to begin with.
NK doesn't think they've failed, nor does Assad, nor any govt. that continues to stay in power.
How do we define a nation state failing?
To consider any one of them as a "problem to be solved" is already begging the question; to consider them at the same time is hubris.
They recently confiscated a container full of medicine and food sent from Chile to Caritas Venezuela. Some of the medicine was spoilt, the rest was confiscated by the government.