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firekvz

I really can't understand how this article misses entirely the actual news here

"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.

View on HN

You conveniently miss the part where people are losing money and savings because they cannot exchange the bank notes they had at home before the deadline ends. 30% percent of the population here does not have access to a bank account and cannot deposit the bills.

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.

Hi from Argentina. We change money every 10-15 years, so we are use to strange things.

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 )

According to the government, this was done as a surprise measure to stop the mafias taking the bills to Colombia as part of the "Economic Warfare" (that convenient excuse for our failed economy) that is being waged against Venezuela.

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.

They did that exact thing in the USSR in 1991 - removed 50 and 100 ruble banknotes (the two largest) from circulation - presumably because there were a lot of fakes floating around, and the legitimate ones were heavily used in money laundering.

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.

>"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.

No money launderer is going to be holding Venezuela's worthless hyperinflationary currency. They've be holding other assets that are actually worth something.

There's a video shared in this discussion that seems to suggest otherwise:

https://www.youtube.com/watch?v=p23Fn1LVGv0

Given how crazy the hyperinflation has been, that could easily be just a factories payroll, sadly.

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).

It's more than that: it's the government doing anti-market things such as forcing stores to sell products below cost, then lamenting that shortages are happening. That government has no concept of basic economics. Central planning has never worked -- ever. They need to read more Adam Smith and less Karl Marx.

Sure, those are problems too, but my understanding is the bulk of that happened after oil prices dropped.

Of course, the root cause here is definitely getting dependent on that in the first place.

That may be true, but many other countries are weathering the storm of falling oil prices just fine. Venezuela simply doesn't have enough of a free or business friendly economy to allow them to diversify enough. If Maduro came out today and said "all price controls are off, all taxes are cut in half, all business regulations are on hold for 1 year", things would rebound very quickly. It would take awhile to generate food but once that trains starts, to the extent that the government and crime don't interfere with it their people will have no problem finding food.

Yes, I think I agree with you on all that personally; I was trying too hard to avoid making my comments overtly political.

> Venezuela simply doesn't have enough of a free or business friendly economy to allow them to diversify enough. If Maduro came out today and said "all price controls are off, all taxes are cut in half, all business regulations are on hold for 1 year", things would rebound very quickly.

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.

It's not that easy. Venezuela was blocked from access to the financial market by an US-american Hedgefond together with a private court in the aftermatch of the 2008 crash. Add to that the failing oil price. While Venezuela strived to be a socialist country before, part of what happened later was pure necessity.

> Venezuela was blocked from access to the financial market by an US-american Hedgefond together with a private court in the aftermatch of the 2008 crash.

Citation?

I really haven't read anything about that. In fact, Venezuela has been issuing debt bonds without any blocks. Are you sure you are talking about Venezuela?

Oh. That's embarrassing, I think I mixed it up with the situation in Argentina. Venezuela did have problems to access the financial market and it does explain some recent anti-capitalist measures, but that was not directly related to an earlier hedge fond ruling as I was convinced, it was a more simple case of not paying because of having too much debt. It it related to the argentinian situation, but not the same. Source: https://www.weforum.org/agenda/2016/10/restructuring-venezue...

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.

That's absurdly wrong.

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.)

I can appreciate the cynicism your Venezuelan friends have about their government, they don't seem particularly competent or completely trustworthy.

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.

Maduro would be better off telling the truth rather than destroying what trust is left in government via silly lies: Venezuela has relied too heavily on oil exports, and the drop in oil prices is bankrupting the country.

Okay, so he tells the truth. What should he do next?

Resign and allow an economically sane government instead of a communist former bus driver to run things. I know he loves power but you'd think he could look at the food lines and horrific hospitals and admit someone else might be better qualified.

Fine, let's say he resigns. What actions should the leader who takes over do to turn the economy around?

Figure out what else you can export. Borrow and spend on public infrastructure projects.

> Borrow and spend on public infrastructure projects.

That's a little hard to do when you're currently facing hyperinflation.

Stop running the printing presses. Venezuela's hyperinflation is caused by one thing and only one thing, Venezuela is just printing money as fast as it can.

> Venezuela's hyperinflation is caused by one thing and only one thing, Venezuela is just printing money as fast as it can.

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.

> Okay, then how are you going to "borrow and spend on public infrastructure"? Where is that money going to come from?

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.

> No one is buying bonds from a country suffering from hyperinflation. That would be crazy.

Yes, that's what I'm saying. Which is why the "solution" isn't as simple as "borrow and spend on public infrastructure".

Merely allowing normal currency free currency trading rather than the strange mess they have at the moment and dropping price controls would fix a lot of the problems. Also allowing largely free trade and freedom of doing business and charging a normal market price for gas would help.

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.

The only option after abdicating your dictatorship (if that's what he'd do after telling the truth), is to flee the country. If you stay, you'll be killed.

Fine, let's say he flees the country. What actions should the leader who takes over do to turn the economy around?

Introducing something like the Unit of Real Value could be a good start.

http://www.npr.org/sections/money/2010/10/04/130329523/how-f...

Jail all communists. Cut expenses by factor of 3x. Introduce a stable currency (e.g. «equivalent of 1 USD» - equo). Force creation of new small firms by providing government couching and assistance, while also reduce taxes for them to bare minimum — small business can soak lot of unemployment for free. Rely on large business to cover government expenses, but be realistic: no taxes means no expenses.

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.

Starting by jailing your political opponents... That doesn't seem like a good way to build trust.

Venezuela's real problem isn't just relying on oil exports; it's more about the leadership living in a fantasy land where they ignore realities of economic policy. For instance, they fail to understand or to admit that price controls have other impacts, and that when a bakery is forced to sell bread at below the cost of manufacture, the resulting shortages are not because of a counter-revolutionary conspiracy.

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.

Get a team of high level economists in your central bank and economic advisory board.

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.

Hyperinflation is a well studied phenomena! He should invite some world-class economists to help guide policy!! What's so hard about that?

He's a stubborn, prideful person my guess.

Possibly. However, I suspect the problems in Venezuela aren't just with hyperinflation. In any case, leadership that the people can trust will be a good start.

The problem is the needed steps would move the country in a free market direction, and Madura wants to stick with socialism.

Two things would go a long way.

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).

There was an interesting article on Reason.com about Bitcoin mining in Venezuela.

https://reason.com/archives/2016/11/28/the-secret-dangerous-...

True. I heard India did it with a notice of 2-3 hours.

Actually the notes stopped being legal tender within a 3 hour notice. But the government has given a time period of 50 days for someone with the old notes to go to a bank and either deposit them or exchange them for new notes.

> Of course all the previous bank notes (from the old set) are being banned because they are being taking out of circulation.

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.

Yeah you are right but it's just how they did it in here.

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.

my god, if those aren't fake, that's hundreds of cubic feet of 100 VEF bills.

Why was the bill banned before any of the new bills were ready to hand out? Also, I'm not sure I buy this "secret media campaign" hypothesis. Hyperinflation does not end well.

Hyperinflation only ends when you restore trust in the currency. Venezuela supposedly has massive problems with black market trading. 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. I'd suggest that's what the Venezuelan government is trying to do.

How does revoking the legal tender status of part of the local currency supply help with the black market if the black market is using something other than the local currency?

Think about it from the perspective of someone in the black market. If I accumulate Bolivars I can have greater control over the local market, slowing down the velocity of trade, creating artificial scarcity. 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. The losses incurred by hoarding increasingly worthless currency can be offset by the profits made elsewhere.

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.

So to be clear, you're suggesting that these black market operatives are creating localised artificial scarcity of Bolivars in the form of cash. But Venezuela is a fairly modern country with ATMs and electronic payments, along with the associated cash distribution infrastructure all that implies. How are black market operatives successfully doing that, given how easy it is to move funds into an area, or for that matter, bypass the scarcity entirely via electronic payments?

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.

>"So to be clear, you're suggesting that these black market operatives are creating localised artificial scarcity of Bolivars in the form of cash."

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.

> Not necessarily in cash alone

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.

> 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.

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.

Hi from Argentina!

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.

> If I accumulate Bolivars I can have greater control over the local market, slowing down the velocity of trade, creating artificial scarcity.

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.

>"That's mathematically impossible."

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).

> 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.

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?

The government has enabled the black market by forcing businesses to sell below cost in the name of 'helping the people.'

This problem is entirely the creation of a government hell-bent on pursing discredited economic theories.

There are opportunists on both sides. The main mistake the government made was having an economy that was too heavily dependent on a single industry. After oil prices dropped rapidly it was almost certain you'd see economic turmoil. There's no economic theory that would've saved a country that was too dependent on a single source of income.

> The main mistake the government made was having an economy that was too heavily dependent on a single industry.

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.

>"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."

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.

> 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.

This seems like the main driver. It seems like you get substantial currency black markets if your artificially pegged exchange rate (for either foreign currency or goods & services) begins drifting from the rate the market will bear. Black market currency trading is arbitrage between an official system and a free market.

> Hyperinflation only ends when you restore trust in the currency.

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.

>"Inflation is a monetary phenomenon. It's not caused by a lack of trust."

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.

I think you are confusing cause and effect. Trust is lost when the government destroys the value of the currency, by e.g., printing money.

> 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.

> 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.

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.

>So yeah if after 15 days you still have bill leftover you pretty much were into corruption, drugs, money laundering, smuggling

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.

"Money laundering shouldn't be a crime"?

Explain why it shouldn't, please.

In the case of hyperinflation, it doesn't matter much. When cash on hand loses half it's value in a month on a regular basis, virtually no one will keep more cash than is needed for purchases and will spend all of it the day they are paid if possible.

Yeah, if you were a criminal in a country where the local currency was inflating like that you'd do business in dollars or euros.

True, though controlling the supply of the local currency can also be used to control the prices that citizens pay for goods, which can be used to drive more people into the black market.

>So yeah if after 15 days you still have bill leftover you pretty much were into corruption, drugs, money laundering, smuggling

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?

The article suggested they closed the border with Colombia during the transition (perhaps they did this with other countries too), as the hoarded money was meant to have been held outside the country.

Why would anyone be hoarding a hyperinflationary currency?

Have responded to this on another comment you made.

You say, "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"

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.

I think you may have missed the "will have" in that sentence - as in, they're claiming this will destroy the value people's money otherwise would have.

If Venezuela just wanted to make using the currency more convenient they'd have no reason to revoke the legal tender status of the old notes so quickly. In Canada for instance, we've replaced the one and two dollar bills and removed the penny from circulation entirely in my lifetime, yet they're all still legal tender. Ever note issued since 1935 is still legal tender.

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.

Even in India, it's not "demonetization". Even though the word demonetization is used loosely, it is actually "remonetization" and "really a currency swap where you could have exchanged your old notes in a certain period and also you still have time to deposit all your old notes in all the banks till the end of the year.

-> 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.

I'm not trying to critique your english (and thank you for sharing this comment), but for everyone who can't figure out -- desing == design. I really thought desing was a verb but just couldn't figure out what.

I've found it to be a fairly common typo - design's last two letters are (for me at least) typed with index fingers and it's trivial to transpose them.

(here's hoping people who weren't already aware find both of our comments useful ;)

Man, our intelligence service (SEBIN) -really- should spend a bit more on English classes.

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.

Thank you for showing another side to this.

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.

That's a heavy question, indeed. I'm no economics buff, keep that in mind, but I'll try to sketch what I think should be done.

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.

Thank you for your response, those sound like some sensible reforms to me. Are there any local political groups currently pushing for any of these reforms? If not, can you see this type of political movement emerging as things get worse?

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.

For groups pushing any of those reforms you need to start by omitting the largest opposition coalition (MUD). They propose no such reforms, just that the government should "do things better" and be "less cynical". Implicitly, the message is that they would do a better job, but nowadays no one believes them.

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.

To give some idea what happened in Ecuador...

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."

Some kind of new political organization might come out of all the worsening things that are happening as people lose trust on an ineffective mainstream opposition, but I haven't seen it as of yet. So far all I see are people trying to get by at the levels of the individual and the family.

Those are fine points - but - it's way beyond policy at this point.

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.

This is an accurate impression. The actual implementation of those measures I outlined is beyond what I can conceive right now. When it comes to short and mid term I've got no hope at all.

Mexico did the same in the 90s, but old and new currency coexisted for a while as legal tender.

Mueve tres ceros. Los nuevos pesos \o/

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