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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

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.
    - mullen 10y ago
      > 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.
- 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?

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.
  - mullen 10y ago
    > 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.
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?