Venezuela Follows India’s Example and Voids Half of Its Cash
blogs.wsj.com
blogs.wsj.com
"Venezuela is issuing a full new set of notes and is replacing 100 VEF bills (the biggest we had) for a coin"
So far we had this (in VEF):
- Coins for: 0.05, 0.1, 0.125, 0.5 and 1
- Bills for: 2, 5, 10, 20, 50 and 100
now we will have (in VEF):
- Coins for: 10, 20, 50 and 100
- Bills for: 500, 1.000, 2.000, 5.000, 10.000 and 20.000
So thats about it, the gov is finally accepting that we have a huge inflation and the old bank notes can't be used any more (in terms of convenience) so they are exchanging our current biggest bank note of 100 for other sizes but is nowhere mentioned in the article
Of course all the previous bank notes (from the old set) are being banned because they are being taking out of circulation mostly because the DESING IS THE SAME (just a recolore) and can cause confusions, here you can see a comparation:
- old desing: http://runrun.es/wp-content/uploads/2013/10/venezuela-boliva...
- new desing: http://imgs.globovision.com/2Io-ZrCgwYEjgOw-dGsi6ndh1WM=/700...
In resume this is actual good news for venezuelans because even tho we still suffer all the problems we have, at least we get to avoid carrying 1 kilo of 100 VEF notes to make a purchase, we can just pay with 1 20.000 bill.
Being taken out of circulation doesn't require being banned. Plenty of US currency is no longer circulated but it's still legal tender. Pre-Euro currency is no longer legal tender, but many notes and coins are still exchangable for Euros, almost 15 years after Euros were introduced.
They gave people 15 days to exchange the bank notes for smaller ones or deposit their old notes in the banks or exchange for new ones, we can all agree that this looks like a really small period of time but due to the nature of our economy it's actually a decent time. But the bill is not really "banned" it will be tho and I will explain you the reasons a bit later.
In my case, I deposited all my 100 notes without any problems by monday. I just use debit/credit cards now and other small notes to make cheap purchases.
It's incredible hard to find actual correct information on whats going on because all the media is focused in creating chaos and missinformation, this is an actual good source where you can see the explanation of why only the 100 notes are being replaced on this 1st phase
http://www.analitica.com/economia/canje-de-billetes-en-banca...
But an small resume is that only the 100 VEF notes are being replaced now because they represent the biggest percent over all the notes (is around 50%) so people will want to have a bill of 20.000 instead of 200 bills of 100 VEF.
Once the 500, 1.000, 5.000, 10.000, 20.000 notes are around, they will finish replacing the other small notes 10, 20, 50 and 100 leftovers for coins.
But well, as I said before, the media has started a campaing to make people belive that right now their money will have no value at all and a bunch of other lies, this of course leads to desperation and to problems like we had today where there was violence at diferent banks around the country.
And to explain why the bill will be banned after 15 days is pretty simple, the money in this country has a super high rotation, bills NEVER sit in your pocket or your wallet for more than 1 hour, aditional to this, money in cash is barely used now, a huge percent of the transactions are made electronically because is just not confortable to have a pack of 300 bills to buy food for 3-4 days so cash is actually not really used because of high inflation
So yeah if after 15 days you still have bill leftover you pretty much were into corruption, drugs, money laundering, smuggling, etc and thats exactly what the gov wants to avoid, to all those guys who spend years smuggling in the borders and have containers or warehouses full of 100 VEF notes.
Take a look of this video: https://www.youtube.com/watch?v=p23Fn1LVGv0
This is an asian guy (well known to have smugglings business) showing how many 100 VEF bills he had, it's just hillarious.
By changing the currency to make it more practical, it's possible to encourage more people to trade in Bolivars. The more people trade in Bolivars the less people need the black market.
This latest move isn't a silver bullet, but it probably is a step in the right direction. More work will be needed to ramp up production of goods for the local economy.
Meanwhile, we have a much more plausible story: Venezuela has been hit hard by the decline in oil prices - their main export - yet has been unable to curtail spending to match. That money needs to come from somewhere.
Not necessarily in cash alone, but yes I'm suggesting it's in the interest of black market traders to create scarcity in the local economy.
To give an example of how this is possible, imagine you want to create artificial scarcity, where would you start? I'd suggest starting with the food supply, as there's constant demand no matter the cost. Imagine as a rich outside investor I go in and buy up huge volumes of food staples. What have I done by this? Two things:
1. I've reduced the volume of goods in the local market, increasing scarcity, driving prices up.
2. I've acquired goods that are in demand, which I can then sell on the black market at prices that are favourable to me.
The hoarding of Bolivars comes into play as you want to reduce the chances of other people muscling in on this game.
Is this the whole story? No. I'm sure the government's mismanagement of the economy also plays a large role, but I'm suggesting black market traders are by and large not motivated by altruism, and they have had opportunities to tilt the playing field further in their favour.
The argument of the government is people are hording the Bolivar; hoarding other things isn't relevant to that argument.
You haven't given me any reason to think black market entities would actually be hoarding the Bolivar. Meanwhile, it's quite plausible that part of the aim of this cash confiscation is to take money out of the money supply by any means possible, with political deniability. This reduces inflation, albeit at a high cost, and buys political time by making it look like they're doing something.
No, this is just not true. As gus_massa pointed out, with hyperinflation, no one hoards cash, you try to own things that will retain value. The value of money declines upwards of 50% a month in Venezuela and when you get something that loses value 50% a month, you try not to hold on to it for very long. Black Market traders probably hold on to their cash for less than a day and try to convert over to Columbian pesos or US dollars as quickly as they can.
No one sane hoards bills in a currency with a 150%-200% inflation rate. Each month that you have a storehouse full of this bills, you can imagine that the rats eat a 10%-15% of them. People usually hoard dollars or euros or something with a low inflation rate. Also, people try to hoard big bills, like US$100, not bills with a low denomination, because the shipping and handling cost.
A few years ago we also had here scarcity of bills, because we have a 30% inflation that the government refused to acknowledge and refused to print bigger bills. We have even to import bills printed in Brazil, because the local printer were not fast enough. There were a lot of conspiracy theories about the bad people hording the bills.
The new government just decided to acknowledge the inflation and print ARG$500(US$34) bills instead of ARG$100(US$7). The inflation is still high (40%), but all the supposed hoarders have magically disappeared.
Except the government is creating more and more. You couldn't possibly create a scarcity of bolivars. Also, of all the things you could possibly say about Venezuela over the last few years, you've identified the issue as a shortage of currency?
> The losses incurred by hoarding increasingly worthless currency can be offset by the profits made elsewhere.
That's mathematically impossible.
> possible to encourage more people to trade in Bolivars.
Increasing the velocity of money is actually inflationary. Your proposal to solve inflation is...to have more inflation? That's like saying the cure for hunger is to not eat.
It's not. Increased profit can be made from the sale of fewer goods. There's nothing impossible about it.
>"Increasing the velocity of money is actually inflationary. Your proposal to solve inflation is...to have more inflation? That's like saying the cure for hunger is to not eat."
Is it though? Velocity of money does not necessarily move inflation in a single direction. Prices can rise and fall, based on supply and demand. If what you're suggesting is true, how does the liquidity of a market always result in inflation? It's also worth noting that healthy markets rely on a moderate level of inflation to counteract the value taken away from a market by inactive assets (such as housing).
I doubt very much that you can have greater control over the local market by hoarding Bolivars, especially around border areas. You don't think that merchants/people would accept columbian pesos/brazilian reals as legal tender in border areas? Or euros/US dollars in all areas?
> By creating artificial scarcity I'm then able to increase the demand for goods on the black market, which is where I make my money.
There is already a huge unmet demand for goods on the black market. The artificial scarcity is not produced by hoarding currency, it's produced by price controls/disincentives by producers.
> The losses incurred by hoarding increasingly worthless currency can be offset by the profits made elsewhere.
It's unclear to me why hoarding money increases the profits made elsewhere. Why wouldn't you just skip to the profits being made (eg taking advantage of government subsidized goods) and ignore the hoarding of a rapidly depreciating currency?
This problem is entirely the creation of a government hell-bent on pursing discredited economic theories.
That doesn't hold that much water. Nigeria and Russia are both dependent on petroleum dollars as well, and neither of them are convulsing the way Venezuela is. They're not doing well, but they're not running out of food either.
Huge problems are the policies of state price controls and confiscation of means of production, as well as (until now) the refusal to even acknowledge inflation as symptom of economic mismanagement, rather than external economic warfare.
The state price control board (SUNDEE) just went through and slashed prices for all consumer goods by 30% in retail stores for Christmas. That is not the way to control inflation.
To some extent I agree with you. I accept that the Venezuelan government has mismanaged their economy, and the idea that they can keep using wildly different exchange rates for the same currency seems baffling to me. However, regarding the impact of oil revenues...
https://en.m.wikipedia.org/wiki/Economy_of_Venezuela
"Revenue from petroleum exports accounts for more than 50% of [Venezuela's] GDP and roughly 95% of total exports."
https://en.m.wikipedia.org/wiki/Petroleum_industry_in_Nigeri...
"As of 2014, Nigeria's petroleum industry contributes about 14% to its economy. Therefore, though the petroleum sector is important, it remains in fact a small part of the country's overall diversified economy."
https://en.m.wikipedia.org/wiki/Economy_of_Russia
>"As of 2012 the oil-and-gas sector accounted for 16% of [Russia's] GDP, 52% of federal budget revenues and over 70% of total exports."
...based on those numbers it seems fair to say that the economy of Venezuela is more dependent on oil revenues than Nigeria or Russia, so even without economic mismanagement they would've probably been hit harder by the price drop.
Sort of a chicken and egg problem. It's only through economic mismanagement (price controls, subsidies on imported goods, subsidies on utilities and commodities, government takeovers of property) that Venezuela is more dependent on oil revenues than Nigeria or Russia.
Inflation is a monetary phenomenon. It's not caused by a lack of trust.
> If you can cut down the influence of the black market you can restore goods being bought and sold using the local currency, which will slow down inflation.
That's not how inflation works.
Trust in the value of currency is how money retains value. Modern money has no intrinsic value, it's not backed by anything, it's gains its value from consensus that it holds value.
> Trust in the value of currency is how money retains value.
No, not running the printing presses to pay your bills is how money retains value. :) And a history of retaining value is how a currency becomes trusted.
The black market is the only place where you can get dollars for bolivars, not just bolivars for dollars, so it de-facto is the market for the exchange rate.
If the government persists in having this two-tiered exchange rate with no anchor in reality, no matter what they do, the black market will exist and be the only place normal people without connections can buy goods.
First off, money laundering shouldn't be a crime or on that list.
Second, there's no need to force a recall of notes except to exert more government influence and potentially "steal" money from people.
Explain why it shouldn't, please.
what would prevent those criminals to exchange their 100 VEF notes for new ones? what if they'd ask their friends to help them? or hire other people to change money of their behalf?
But then you say, "the money in this country has a super high rotation, bills NEVER sit in your pocket or your wallet for more than 1 hour"
Dude the media appears to be right. I have bills in my wallet that have been there for years.
(here's hoping people who weren't already aware find both of our comments useful ;)
Except they gave people 3 days to exchange any that they had, and it was announced at 9pm on the day immediately preceding that 3-day period.
The end result is that they effectively took out 14 billion rubles from circulation - i.e. country residents were collectively robbed of that amount of money.
A similar thing was repeated in 1993, except with a 2 week timeframe to exchange.
When such procedure is done properly for legitimate reasons, the timeframe is usually set to several years.
If you're trying to crack down on money launderers, 2 years is far too long. You want to make it hard to disguise high levels of hoarding. Whilst I don't doubt that some of that 14 billion rubles took money out of the pocket of normal citizens, perhaps it also hints at the size of the problems that the government was trying to address.
Frankly, I'm dubious about anything the Venezuelan government says, as are my Venezuelan friends.
Seems much more likely that this is a classic case of a oil export dependent government being hit by low oil prices and being unable to implement spending cuts (understandable given the political consequences).
Of course, the root cause here is definitely getting dependent on that in the first place.
This is not Venezuela's problem. The problem is that Maduro is trying to control capital flight by fixing the exchange rate. The currency is not free floating and when companies want to buy goods overseas, they have to go to the government and ask permission to exchange their Bolivars to Dollars. This causes two problems, the government is really slow to approve the conversion of Bolivars to Dollars and the exchange rate does not reflect the real world value of Bolivars. Every time someone exchanges Bolivars to Dollars, the government loses a lot of money. The government does not want this to happen so they are not approving a lot of outbound capital. The import business has ground to a halt because of this.
Citation?
I wonder whether there was an earlier situation like that for Venezuela that got resolved beforehand, which would explain why I remember differently, but I found no source for that. Maybe the ISDS rulings against it. I'd delete the comment above if I could.
I think you may be thinking of Argentina? (Not that you're describing events in Argentina correctly either, but at least some of the bits are right.)
However, if you put yourself if Maduro's shoes, what would you do differently? We're not going to make things better until we start thinking of the problems in that way.
That's a little hard to do when you're currently facing hyperinflation.
Okay, then how are you going to "borrow and spend on public infrastructure"? Where is that money going to come from? If you're not going to print it now, you can float a bond, but that bond is going to be backed buy the promise of future solvency. And investors have very little reason to have faith in the future solvency of that government, which means we're back to either printing money to fulfill the bond or defaulting.
Countries suffering from hyperinflation don't borrow and spend on public infrastructure. They run the printing presses to make money so they pay off the military, police and their high level supporters to stay in power.
> If you're not going to print it now, you can float a bond, but that bond is going to be backed buy the promise of future solvency.
No one is buying bonds from a country suffering from hyperinflation. That would be crazy.
Unfortunately for Maduro, the only way to solve this problem is to replace the government, introduce a new currency and stop running the printing presses.
Okay, it's not THAT simple, but it is a good start.
Yes, that's what I'm saying. Which is why the "solution" isn't as simple as "borrow and spend on public infrastructure".
They could also apologize to the likes of Maria Lourdes Afiuni and try to reinstate rule of law and return some of the confiscated businesses to their owners.
Venezuela used to be the richest country in South America and has possibly the worlds largest oil reserves. It's taken some impressively bad governance to get it to its present state.
http://www.npr.org/sections/money/2010/10/04/130329523/how-f...
PS.
Moreover, remove all regulations and restrictions which are not vitally important. It's equivalent of turn off of all consumers of electricity when starting of a car engine.
Maduro and his friends are sticking to power by any means, and we've seen this before in other countries (like Zimbabwe) and we'll see it again elsewhere. Fortunately not in that many countries.
Start with curbing hyperinflation. That's been done before several times. Do what is known to work. There are some macroeconomic PhDs whose wet dream is to have a case so clear cut like this where they can make a difference. Put them in your central bank and have them get to work.
Remove price controls right away on just about everything that is price controlled. Same for supply control/management.
Get the minimum wage back down. Hell put it too low until you have a partial equilibrium to intuit a "correct" MW level to base it on.
First, stop all attempts to control the exchange rate. The moment you have an "official" and "unofficial" exchange rate for a currency, you're going to have a black market cashing in on the difference. Just leave the rate to stabilize by itself, at whatever level the market is willing to pay for it.
Second, stop regulating prices for any goods for which there is a deficit. If the price is artificially low, that causes a deficit, because the aforementioned black market will use all means available to buy products at those low prices, and resell them at the real prices.
And none of this is rocket science. These two things are exactly what had to be done in the USSR to get anywhere (and, like Venezuela, they persisted in refusing to do them for a long time, making the problem worse and worse).
https://reason.com/archives/2016/11/28/the-secret-dangerous-...
Just kidding. But seriously, what I can't understand is how this comment misses the -actual- news here. Here's the other side of the picture: The actual, recent ground news have been reported mostly on Twitter because our media is intervened by the goverment.
A small sample:
A bank, looted. https://twitter.com/AndrewsAbreu/status/809937243280441344 Another. https://twitter.com/guasdualitotv/status/809918995512037376 Protests on a government bank. With smoke. https://twitter.com/MiguelCardoza/status/809892935181496320
The people are angry and despairing on the streets. This measure essentially makes 100 Bolívares bills useless, which were becoming scarce in previous months, so people naturally stockpiled them. You can't even buy a small pack of chewing gum with the highest denomination bill, so obviosly these stockpiles were big. This was done especially by the elderly, who don't understand / have trouble understanding ATM machines and electronic operations.
People are doing street-spanning queues to exchange those bills.
A queue for exchanging banknotes at 10PM. https://twitter.com/fmonroy/status/809955687333789696 Another photo: https://twitter.com/AleReportando/status/809981094925860864
I've heard about people crying on the streets, afraid of their savings dissapearing in thin air.
> "the gov is finally accepting that we have a huge inflation"
No, it isn't. There's ZERO recognition of the goverment on this. The party line is that this measure was necessary to "attack bill trafficking mafias on Colombia and other countries" https://www.theguardian.com/world/2016/dec/12/venezuela-pull...
> "this is actual good news for venezuelans because even tho we still suffer all the problems we have"
Problems which were caused by the government to begin with. This is essentially a ham-fisted solution to a problem the bolivarian revolution created out of ideological dogma and fiscal irresponsability. Foreign exchange controls, printing money like if there were no tomorrow during previous years, institutionalized corruption, nationalizing industry and then crashing production.
This is our situation here. I'm usually just a lurker on HN, but your apologist tone makes my blood boil. If other HN netizens have questions or want more details I'm willing to answer them.
Just to get a fuller picture of the situation in your country, if you were the President, what actions would you take to stabilise the economy? I'd like to find out if you think there are practical measures that are being overlooked in the current chaos.
I'd say that the main problem is the multi-tiered foreign exchange system we have in place. There's an "official, protected, preferential" rate of 10 Bolívares per dollar, the SIMADI rate (674,34) and the parallel/black market rate (approximately at 2500 Bolívares this december right now). This system is what essentially makes our economy a mess. So called revolutionaries are just new burgueoisie wearing red shirts who import goods we no longer produce (food, medicine, industrial supplies, etc) with the cheap dollar and sell them as if they had used the black market rate (bemoaning "capitalism" as they do). The private sector is barred from the protected-cheap rate and has an extremely obscure access to the middle system (SIMADI), and that's if they're friendly with the government. Individual citizens can only use the black market rate, which is illegal. Solving this problem is conceptually easy: The foreign exchange should be unified, there should be only one rate for everyone to exchange Bolívares for foreign currencies. The public sector, the private sector and individual citizens should pay the same to get foreign currency. This looks evident, but there are many interests and people in power who benefit from the current system's corruption, stunting production, foreign investment and general trust in our currency.
Besides the foreign exchange rate there are a lot of subsidies in place that should be partially removed, progressively. Gasoline here is still dirt cheap (world's cheapest oil and that), sold below production cost. We still send oil to Cuba at a price below market rate out of "national friendship", even when our oil production is decreasing and some people scour thrash cans for food to eat. To say we get no economic benefit from giving away oil out of "national friendship" is putting it mildly. Given that we're primarily an oil exporting country, removing gas subsidies (progressively) and eliminating foreign gifts would alleviate some stress. Cooking gas, electricity and internet access are also subsidized. This is hard for me to say, but the price should also go up there. These public services have sporadic failures out of lack of investment, bad maintenance and lack of supplies to make repairs. It rains, the lights and the internet might go out, for example. If the situation remains as it is the public service infrastructure might go beyond obsolete and underfunded to outright useless due to lack of maintenance, which would be even worse.
Also, the government should stop intervening media and demonizing the private sector to blame it from the policies the revolution has implemented. This demonizing scares foreign investment, decreases production and, frankly, makes our people more stupid, which overall decreases our ability to make informed choices at everything. This is highly unlikely today, though. They want the people to be angry, looting local grocery stores and blaming "capitalists" for the scarcity of goods instead of the government that implements the policies that cause the scarcity itself.
There's more stuff, but that's the main course to begin changing things, I think.
Also, do you think there's any chance of doing what Ecuador did in similar circumstances by making the US Dollar the national currency? At least until the fundamental problems are sorted out.
So far, two politicians come to mind. Leopoldo López (who is in prison) and María Corina Machado (who has been removed from mainstream MUD and derided as a "divisionist" by the MUD themselves). Their reach is extremely limited, though. No access to goverment-controlled media and conveniently forgotten or shunned by mainstream opposition.
Regarding Ecuador, I'm not sure. I do not have a full picture of the economic circumstances Ecuador considered then and how they relate to ours, right now. If anything, --if-- we were going to try that measure it should be after we try other methods to increase trust on our currency and then find them to be insufficient, I think.
https://en.m.wikipedia.org/wiki/Currency_of_Ecuador
"The sucre maintained a fairly stable exchange rate against the US dollar until 1983, when it was devalued to 42 per dollar and a crawling peg was adopted. Depreciation gained momentum and the free market rate was over 800 per dollar by 1990 and almost 3000 per in 1995.
The sucre lost 67% of its foreign exchange value during 1999, then in one week nosedived 17%, ending at 25,000/US$1 on January 7, 2000. On January 9, President Jamil Mahuad announced that the US dollar would be adopted as Ecuador's official currency. Protests led to his removal. Vice President Gustavo Noboa became president, only to confirm the government's commitment to dollarization.
On March 9, 2000, Noboa signed a law passed by Congress, replacing the sucre with the United States dollar at an official exchange rate of 25,000 sucres per US$1. Both currencies were to circulate, the dollar being used for all but the smallest transactions. Only coins would continue in the local currency."
The only thing that will start to restore confidence is the removal of the current regime.
If there is a 'new entity' that has some credibility, and it basically stops the most obvious forms of totalitarianism ... then you could move back into a 'very bad but stable' situation. From there - it would take massive re-working of all levels of government because ultimately it's the culture of corruption, cronyism that is the root of all those 'bad policies'. If the systematic corruption is entrenched (i.e. government insiders holding large chunks of debt, insiders making money off the exchange process) - then there's no hope.
But step 1 has to be Maduro out. There's nothing he can do.
Equally, they appear to be running late on actually introducing the new notes - some ATM machines are reportedly even still issuing the old (now worthless) notes, and others just don't work.
Are the people living in the most remote parts of the country supposed to make the journey to Caracas to the Central Bank to deposit their money? What are they going to pay the bus ticket with? The worthless paper they are now holding? Are they supposed to travel with a bag full of cash in one of the most dangerous countries in the world?
If you live here in Venezuela you know most workers get paid on Fridays in cash. Now , most are left holding a bunch of worthless paper just because Maduro decided to play improvisation with the economy once again. Those workers now have no money to pay for food till monday.
Why did the government lie and say that the new bills would be in every bank on the 15th? Turns out they just arrived yesterday! The new bills weren't even in the country. Just a small sampling of their incompetence.
This is very strange. When we change money we usually have a longer period while both kind of bills are valid.
For example, now we have two designs of the ARG$100(US$7) and ARG$50(US$3.5) for political reasons and two designs of the ARG$10(US$0.7) for security reasons. They are used together and the ATM can provide any of them at random. The two ARG$100(US$7) bills have coexisted since 2013 and there is no problem.
We also have ARG$2(US$0.15) bills and coins since 2011 without problem. Actually all the ARG$2(US$0.15) bills are very old and not very well conserved, so you must treat them carefully to not destroy them, but you still can use them.
So it's very fishy that they are forcing to put all the bill in the bank with a in a extremely short time. I suspect something shady like a Corralito, but I still can't discard plain stupidity. ( https://en.wikipedia.org/wiki/Corralito )
Lots of people are talking about a Corralito here. The people exchanging their bank notes in the Central Bank in Caracas are only receiving a voucher saying that they deposited their money there!
Those that cannot make the trip to Caracas or don't have access to a bank or bank account are basically screwed.
There is a theory that since the dollar black market rate was increasing every day, the government did this as a way to collect all that money in the streets as a way to stop it.
The government insists on blaming all our problems on external factors, it's never their fault. But no one ever thinks if it would actually be possible for an "evil actor" to influence the economy of an entire country via twitter or mafias, like they constantly say.
-> Old notes which are now invalid: 500, 1000
-> New notes introduced: 500, 2000
There are plans for new 1000s to be reintroduced and new 100s etc., also to be introduced.
https://en.m.wikipedia.org/wiki/Monetary_reform_in_the_Sovie...
- Population: 30.8 million vs 1.29 billion
- Internet usage: 61.87% vs 26% of population
- GDP: $371.3 billion vs $2.074 trillion
I think it's far easier/achievable by Venezuela to implement than it has been for India.
[1] https://www.wolframalpha.com/input/?i=venezuela+vs+india
There is only one number that matters and its inflation 500% as of April 2016. Venezuela is suffering from hyperinflation and scarcity.
http://money.cnn.com/2016/04/12/news/economy/venezuela-imf-e...
India on other hand is going through a period of robust growth, with inflation well within limits. Even the worst projection show that the demonetisation will reduce india's growth rate from 6% to 4% for at most couple of quarters. 4% is still considered quite a good growth rate.
Actually the worst phase of demonetisation is already over. In 30 days everything will be back to normal.
Even the government doesn't think things will be back to normal in 30 days. According to the finance minister, it will take 1-2 quarters.
http://www.businessinsider.in/Effect-of-demonetisation-will-...
The effect may take at least a quarter to ease down.
[1] http://www.deccanchronicle.com/business/economy/161216/cash-...
And I'm pretty sure GP said "everything" will be back to normal in 30 days, not just the cash crunch.
I don't think you can brush aside broadly like that. You may have your own reasons not to believe them. Can't say can't believe them. Have to wait and watch
> And I'm pretty sure GP said "everything" will be back to normal in 30 days, not just the cash crunch.
I admit my interpretation was different and may be wrong what OP said. Only he can confirm what he meant :-).
> What does Internet usage or Population has to do with an economic move
Erm. Demonetization implies that the population either has to stop using the currency or use alternative "cashless" modes for payment. Internet usage has everything to do with it, because only a quarter of the population can realistically stop using cash in case of India.
Population is relevant because there's a physical limit on how soon the cash scarcity is fulfilled.
> India ... is going through a period of robust growth ... 4% is still considered quite a good growth rate.
Citation needed.
> quoting meaningless number without having any clue
Meaningless in which context?
--
On the other hand, in my personal opinion, any Govt. policy is flawed if it causes death of a single individual -- no matter what the intentions, what the results be. If the Gov. does not hold enough empathy and liability to consider the effects of its policies on its own population, it has failed. People are not collateral damage that it is acceptable that a couple of hundreds die. [1] [2] [3]
--
> Actually the worst phase of demonetisation is already over. In 30 days everything will be back to normal.
Will it bring back the dead?
[1] http://scroll.in/article/823652/demonetisation-induced-unemp...
[2] http://www.firstpost.com/business/demonetisation-effect-hung...
[3] http://timesofindia.indiatimes.com/city/surat/Woman-paid-in-...
This is not true at all.
There is some relationship between press and gov. but Barack Obama is in no way censoring CNN, Fox form publishing stories about bank robberies.
The 'real reason' that they don't is because their readership just does not care.
Fox News has been bashing Venezuela for years, it's crazy to suggest 'the government' is suppressing them from publishing negative stories about Venezuela.
That said - I personally wish there was more coverage.
Nobody cares about the specifics of Venezuelan currency exchange. So they don't cover it.
It's absurd to suggest they are 'not covering it' because the US government is intervening on that issue. Totally absurd.
Canada is the US #1 trading partner, and how much coverage do you see about Canada? None. We have a new Prime Minister and it barely makes the news. We have major trade disputes on going - zero coverage. Because nobody cares.
Trump, Taylor Swift, the current SJW meme, and the last 'shooting' and whatever is trending on Twitter is what they cover.
There is a war going on in Mosul, Americans involved, and since the start of that action there's been zero coverage.
It's because people don't care enough. That's it. There's no conspiracy.
You want details on Mosul go to AlJazeera. You want details on Canada go to the CBC. etc.
My bad, I guess - but it's really not clear from that post that you're referring to the Venezuelan press, as opposed to the US press. When you say 'our press' I didn't know you meant 'Venezuelan' , most people are not familiar with the acronym you used there on the first line. I assumed it was American, actually.
Do you know what circulation means in this context? If the money is in a bank, it's still in circulation, you can use your ATM card to pay for stuff with it. You just don't have the bill on you, but the money is still floating around.
(Or is there a some economic reason this is a terrible idea?)
Adopting another currency makes sense if it's easy to do a lot of trade using it. The closer you are to other $ users then, the closer the real value, because you can easily trade outside of the local bubble.
(It could work of course (and did for some countries)... but you still need to have actual well working trade to make sure the currency has the value you expect)
The point of pegging your currency to a foreign currency is to rebuild trust in your currency by guaranteeing a fixed exchange rate.
But if you do that by pegging to multiple currencies that all have variable exchange rates, how do you handle the relative changes between them ?
The only way would to be adjust it almost daily. Which is the same thing as letting it float.
++ PS: I'm talking about a somehow hard peg here. Most countries tend to use targets and will try to maintain some levels of rate. But they do so by operation on the market rather a peg by fiat.
But only as a transition measure, to rebuild trust.
But no, you can't just make a trivial fix like you said. Venezuela has a dysfunctional government that used to be propped up by oil exports back when oil used to be a highly-priced commodity. After the crash in oil prices, the sorce of income dried up and revealed huge flaws in the country's infrastructure and government inefficiency and corruption.
It being an insufficient fix does not stop it from being trivial and performing its stated goal.
The real idea is not to stop making money, it's to put a lid on the production speed. An armed guard that only allows 5% more production each month than the previous month.
This gives the government an enormous budget that never runs out, and at the same time money will continue to hold its value on a week-to-week basis.
Now tell me: Is this plan doomed because of some economic fact I'm unaware of, or is it doomed because of corruption and politicking?
Unless they do substantial budget cuts (which were are so far assuming that they cannot or will not do) they would be forced to stop paying suppliers and public servants, which would result in even more chaos than there is right now.
Printing this much money would cause less than 5% inflation per month. It would be unpleasant, but you could get a biweekly paycheck and spend it over the next few weeks without having all the value disappear. Supply chains would continue to operate without much trouble. It would be vastly superior to hyperinflation.
Inflation is a tax on people who hold your currency. That's where the money to fund government programs is coming from.
As you said: "The government is printing money to pay expenses". I'm talking about a limit on how much money they print.
> Inflation is a tax on people who hold your currency.
It is. And it goes from bad to disaster when it goes from inflation to hyperinflation.
I want to make it clear that I'm suggesting that they start by printing more than they spent the previous month.
In absolute units of currency? Yes. When you print money like that every unit of currency is worth correspondingly less. It's exponential, which is how you get 480% inflation this year and a projected 1640% next year in Venezuela without a constant dollar increase in spending.
The only way out is a drastic reduction in services.
I don't see how all of the following could be true at the same time: 1. The inflation is caused by the printing of more money. 2. Printing enough money to inflate the supply less than 5% per month. 3. Costs increasing more than 5% per month.
If the government and the economy were both functioning properly there would be no reason to print money - the treasury would be receiving enough money through taxation. Governments don't go into wholesale printing unless that's not happening.
Though to be fair it seems every FR system does at least print around the edges, eventually.