8 ms·

Cash chaos in Venezuela after banknote withdrawn

67 points by endswapper 10y ago

peeters 10y ago
> On Sunday, Maduro made a surprise announcement that the 100-bolivar note, which is worth little more than two US cents, would go out of circulation. 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.
- georgeglue1 10y ago
  The officially pegged rate also significantly differs than black market rates in Venezuela.
  - peeters 10y ago
    That's it. Thanks. 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 $10? I always thought foreign currency was an asset like any other that you could trade at rates determined by the market.
    - rafaelm 10y ago
      They can't, but they want to play that that's how the economy works. That you can place an artificial value on your currency and everyone has to obey. So, you get a disastrous economy like the one we have.
      - ch4s3 10y ago
        >So, you get a disastrous economy like the one we have. Care to elaborate?
        rafaelm 10y ago
        Well, the explanation is waaay to long, but basically when you have a government mandated exchange rate at Bs.10/$ (that can only be accessed by corrupt military and government officials) and a black market rate that has reached 500 times the official rate, you get massive corruption. 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.
        jimmywanger 10y ago
        Also price controls. If you work for government, let's say your minimum wage is 1000 bolivars a week. (Just a nice round number). 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.
        ChuckMcM 10y ago
        The two sibling comments mention the effects, black markets (trading outside the rules) and production problems. But they don't mention the 'why'. 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.
    - Lazare 10y ago
      > So what makes it "black market" outside of Venezuela? "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.)
    - rwmj 10y ago
      When I visited the Soviet Union in 1990 (as a tourist), the official exchange rate was 4 roubles for each US dollar. But in the street outside the hotel you could find people offering 20 roubles / $ to tourists. In restaurants outside the official hotels the effective rate was even lower with one being able to afford extraordinary meals for a few dollars, provided you paid in dollars. We ate caviar and drank champagne every day, which I very much doubt any Russians were doing.
- imaginenore 10y ago
  The official rate is 1 USD = 9.99 VEF. You can't really get dollars at that rate, only bolivars. The real (black market) rate goes down so fast, it looks like this: http://i.imgur.com/Ce6PuHq.png http://i.imgur.com/Ce6PuHq.png
johansch 10y ago
Observation: 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.
- Nicholas_C 10y ago
  Got any ideas?
  - johansch 10y ago
    1. Tear down the UN since it has failed. Russia, China or the US will always block something. The security council is clearly dysfunctional. 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.
    - aftbit 10y ago
      The UN was not created to be a humanitarian force. The UN (like the League of Nations before it) was created to prevent another world war. The League failed, but since we haven't had WW3, I think it's a bit disingenuous to claim that the UN has failed.
      - johansch 10y ago
        Sure, you have a point there. 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?
      - BariumBlue 10y ago
        The UN currently functions as more of a common public forum, where any country may voice their opinion and all are heard and may discuss. Even North Korea has been admitted to the UN. In fostering discussion and enabling rational diplomacy between nations, it has been a success.
rafaelm 10y ago
Just when I thought things couldn't get worse here, Maduro does it again. There are reports of looting in several cities because there is no cash to be found anywhere. Lots of workers get paid every Friday in cash. Some of them got paid with Bs.100 bills which are no longer being accepted. So they effectively have no money to buy food with. 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.
- viraptor 10y ago
  Since you know the local situation, could you tell me if it's common to see people use foreign currency for local products? I remember that when eastern Europe economy was isolated / currency unstable, people sometimes either did small scale barter, or used US dollars for large transactions (if they could get any, that is...)
  - rafaelm 10y ago
    There is a small market in USD for larger transactions like real estate, cars,etc. But not for day to day stuff like food. 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.
aftbit 10y ago
I just finished re-reading Cryptonomicon. One of the business ideas in that book is to create a stable digital currency to replace failing Asian currencies and help their economies grow. I don't know that an accessible, anonymous, global, hands-off libertarian digital currency is the ideal situation, but it would certainly provide some interesting alternatives.
- kennyrowe 10y ago
  >stable digital currency 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.
- rebuilder 10y ago
  It's pretty tough to create such a currency.
- gozur88 10y ago
  I'm not sure it's possible to create a stable (in the sense that prices for the things you buy don't go up or down) currency that isn't somehow managed. If the currency becomes more popular prices will go down. During recessions prices will go up. 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.
  - h4nkoslo 10y ago
    This is widely known as the "trilemma"; you can have at most 2 of: - Fixed exchange rate - Free movement of capital - Ability to conduct your own monetary policy https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity
rb808 10y ago
Are there any good charities that work in Venezuela? There are regularly appeals for other poor or war-torn countries but little for such a close neighbor that seems to really need food & medicine.
- rafaelm 10y ago
  The government would not allow any charities to work here. They do not want to admit that they have a crisis in their hands. 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.
  - lisivka 10y ago
    Are foreigners allowed to stay in the country for prolonged periods (e.g. more than year), buy a land, house, flat, open a church, charitable fund, firm?
elcct 10y ago
Oh joys of socialism...
- tekklloneer 10y ago
  Actually, in this case it's the joys of a resource-extraction-based economy which leads to massive consolidation of power and corruption, and which may be dolled up under many forms of government, left or right. Socialism isn't the problem here.
cjlars 10y ago
One culprit behind Venezuela's hyperinflation is their multiple exchange rate program. They have 3 official exchange rates levels, with the most favorable two reserved for government prioritized imports, like food and medicine, and the third acts as the supposed general rate for all other products. However, the third rate is not always available so a fourth, 'black market' rate has emerged, which is higher than any government rate. 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-the-country-with-four-exchange-rates https://www.bloomberg.com/news/articles/2015-02-19/venezuela...

67 points by endswapper 10y ago

> On Sunday, Maduro made a surprise announcement that the 100-bolivar note, which is worth little more than two US cents, would go out of circulation. 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.

georgeglue1 10y ago
The officially pegged rate also significantly differs than black market rates in Venezuela.
- peeters 10y ago
  That's it. Thanks. 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 $10? I always thought foreign currency was an asset like any other that you could trade at rates determined by the market.
  - rafaelm 10y ago
    They can't, but they want to play that that's how the economy works. That you can place an artificial value on your currency and everyone has to obey. So, you get a disastrous economy like the one we have.
    - ch4s3 10y ago
      >So, you get a disastrous economy like the one we have. Care to elaborate?
      - rafaelm 10y ago
        Well, the explanation is waaay to long, but basically when you have a government mandated exchange rate at Bs.10/$ (that can only be accessed by corrupt military and government officials) and a black market rate that has reached 500 times the official rate, you get massive corruption. 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.
      - jimmywanger 10y ago
        Also price controls. If you work for government, let's say your minimum wage is 1000 bolivars a week. (Just a nice round number). 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.
      - ChuckMcM 10y ago
        The two sibling comments mention the effects, black markets (trading outside the rules) and production problems. But they don't mention the 'why'. 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.
  - Lazare 10y ago
    > So what makes it "black market" outside of Venezuela? "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.)
  - rwmj 10y ago
    When I visited the Soviet Union in 1990 (as a tourist), the official exchange rate was 4 roubles for each US dollar. But in the street outside the hotel you could find people offering 20 roubles / $ to tourists. In restaurants outside the official hotels the effective rate was even lower with one being able to afford extraordinary meals for a few dollars, provided you paid in dollars. We ate caviar and drank champagne every day, which I very much doubt any Russians were doing.
imaginenore 10y ago
The official rate is 1 USD = 9.99 VEF. You can't really get dollars at that rate, only bolivars. The real (black market) rate goes down so fast, it looks like this: http://i.imgur.com/Ce6PuHq.png http://i.imgur.com/Ce6PuHq.png

johansch 10y ago

Observation: 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.

Nicholas_C 10y ago
Got any ideas?
- johansch 10y ago
  1. Tear down the UN since it has failed. Russia, China or the US will always block something. The security council is clearly dysfunctional. 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.
  - aftbit 10y ago
    The UN was not created to be a humanitarian force. The UN (like the League of Nations before it) was created to prevent another world war. The League failed, but since we haven't had WW3, I think it's a bit disingenuous to claim that the UN has failed.
    - johansch 10y ago
      Sure, you have a point there. 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?
    - BariumBlue 10y ago
      The UN currently functions as more of a common public forum, where any country may voice their opinion and all are heard and may discuss. Even North Korea has been admitted to the UN. In fostering discussion and enabling rational diplomacy between nations, it has been a success.

rafaelm 10y ago

Just when I thought things couldn't get worse here, Maduro does it again. There are reports of looting in several cities because there is no cash to be found anywhere. Lots of workers get paid every Friday in cash. Some of them got paid with Bs.100 bills which are no longer being accepted. So they effectively have no money to buy food with. 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.

viraptor 10y ago
Since you know the local situation, could you tell me if it's common to see people use foreign currency for local products? I remember that when eastern Europe economy was isolated / currency unstable, people sometimes either did small scale barter, or used US dollars for large transactions (if they could get any, that is...)
- rafaelm 10y ago
  There is a small market in USD for larger transactions like real estate, cars,etc. But not for day to day stuff like food. 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.

aftbit 10y ago

I just finished re-reading Cryptonomicon. One of the business ideas in that book is to create a stable digital currency to replace failing Asian currencies and help their economies grow. I don't know that an accessible, anonymous, global, hands-off libertarian digital currency is the ideal situation, but it would certainly provide some interesting alternatives.

kennyrowe 10y ago
>stable digital currency 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.
rebuilder 10y ago
It's pretty tough to create such a currency.
gozur88 10y ago
I'm not sure it's possible to create a stable (in the sense that prices for the things you buy don't go up or down) currency that isn't somehow managed. If the currency becomes more popular prices will go down. During recessions prices will go up. 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.
- h4nkoslo 10y ago
  This is widely known as the "trilemma"; you can have at most 2 of: - Fixed exchange rate - Free movement of capital - Ability to conduct your own monetary policy https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity

rb808 10y ago

Are there any good charities that work in Venezuela? There are regularly appeals for other poor or war-torn countries but little for such a close neighbor that seems to really need food & medicine.

rafaelm 10y ago
The government would not allow any charities to work here. They do not want to admit that they have a crisis in their hands. 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.
- lisivka 10y ago
  Are foreigners allowed to stay in the country for prolonged periods (e.g. more than year), buy a land, house, flat, open a church, charitable fund, firm?

elcct 10y ago

Oh joys of socialism...

tekklloneer 10y ago
Actually, in this case it's the joys of a resource-extraction-based economy which leads to massive consolidation of power and corruption, and which may be dolled up under many forms of government, left or right. Socialism isn't the problem here.

cjlars 10y ago

One culprit behind Venezuela's hyperinflation is their multiple exchange rate program. They have 3 official exchange rates levels, with the most favorable two reserved for government prioritized imports, like food and medicine, and the third acts as the supposed general rate for all other products. However, the third rate is not always available so a fourth, 'black market' rate has emerged, which is higher than any government rate. 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-the-country-with-four-exchange-rates https://www.bloomberg.com/news/articles/2015-02-19/venezuela...