5 ms·

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 doe

by aftbit 10y ago

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.

ZenoArrow 10y ago
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.
- petertodd 10y ago
  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?
  - ZenoArrow 10y ago
    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.
    - petertodd 10y ago
      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.
      - ZenoArrow 10y ago
        >"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.
        petertodd 10y ago
        > 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.
    - gus_massa 10y ago
      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.
    - Lazare 10y ago
      > 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.
      - ZenoArrow 10y ago
        >"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).
    - jimmywanger 10y ago
      > 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?
- briandear 10y ago
  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.
  - ZenoArrow 10y ago
    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.
    - jimmywanger 10y ago
      > 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.
      - ZenoArrow 10y ago
        >"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 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_Nigeria 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 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.
- Lazare 10y ago
  > 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.
  - ZenoArrow 10y ago
    >"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.
    - Lazare 10y ago
      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.
- jimmywanger 10y ago
  > 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.

by aftbit 10y ago

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.

ZenoArrow 10y ago

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.

petertodd 10y ago
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?
- ZenoArrow 10y ago
  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.
  - petertodd 10y ago
    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.
    - ZenoArrow 10y ago
      >"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.
      - petertodd 10y ago
        > 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.
  - gus_massa 10y ago
    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.
  - Lazare 10y ago
    > 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.
    - ZenoArrow 10y ago
      >"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).
  - jimmywanger 10y ago
    > 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?
briandear 10y ago
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.
- ZenoArrow 10y ago
  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.
  - jimmywanger 10y ago
    > 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.
    - ZenoArrow 10y ago
      >"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 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_Nigeria 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 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.
Lazare 10y ago
> 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.
- ZenoArrow 10y ago
  >"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.
  - Lazare 10y ago
    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.
jimmywanger 10y ago
> 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.