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Venezuela devalues the bolivar by 95% and pegs it to ‘oil-linked’ cryptocurrency

149 points by sonnyblarney 8y ago

sonnyblarney 8y ago
Consider the implications of a 95% devaluation. That means any foreign debt, which was already problematic, just went up by 20x. It means your iPhone, which was already too expensive, just went up by 20x. WTF. 'Pegging' currencies is a problem, because the country loses monetary policy controls, but maybe they're smart enough to realize that's the problem in the first place ... it's smart to peg it to something petroleum based as the economy is effectively based on that. Perhaps it's a desperate attempt to restore faith in the currency, i.e. it's 'crypto' and can't be tampered with, and attached to something rational. This might actually be the first hard case use for a good crypto: to basically provide 'integrity' wherein the underlying political system has none ... of course, the only way it can work is if the regime has enough self awareness to recognize this and accepts the limitations of the crypto, and the fact it's an admission that they are so incompetent that they screwed up the entire economy and currency. Of course, any smaller nation may still very well simply opt to use USD as it's considerably more liquid and just makes more sense for so many reasons, political populism aside.
- IMTDb 8y ago
  No it didn't. The foreign debt didn't move an inch. If you needed to sell 1.5 billion oil barrels to repay your foreign debt at $65/barrel, you still need to sell 1.5 billion oil barrel to repay your foreign debt. No change there. On the other hand, all the debt that was issued in bolivars is basically void since a loaf of bread is now worth more than several millions bolivars. All savings are lost, pensions are worth nearly nothing and anyone who trusted the Venezuelan government by buying bonds and/or financing their projects by lending bolivars is fucked. This moves allow Venezuela to technically erase around 1/3 of it's debt, hoping that will allow them to not default on the part that is due in foreign currencies, but scarifying it's own population in the process. Fun times.
  - axilmar 8y ago
    > No it didn't. The foreign debt didn't move an inch. If you needed to sell 1.5 billion oil barrels to repay your foreign debt at $65/barrel, you still need to sell 1.5 billion oil barrel to repay your foreign debt. No change there. If you could produce so much oil, then you wouldn't have the debt in the first place. So the debt actually went up by the Bolivar devaluation, because now Venezuelans must create 20 times the value they created before in order to repay the debt.
    - IMTDb 8y ago
      They definitely can produce so much oil. Venezuela produces around 2 million barrels / day and are ranked no1 by proven oil reserve (https://en.wikipedia.org/wiki/List_of_countries_by_proven_oil_reserves https://en.wikipedia.org/wiki/List_of_countries_by_proven_oi...) . So 1.5 billion barrels is completely in their range over several years ! No one said they need to repay the debt tomorrow, as long as they do not default on the foreign debt (which is the whole point of the move) they can restructure it and repay it at their own pace. The issue comes from the fact that during the last weeks/month, oil production has significantly dwindled due to political turmoil. Instead of defaulting on the foreign debt, they sacrificed their own population. They do not need to create 20x the value they created before. The USD price of a Kilogram of coffee did not change at all, so any amount of coffee they would be selling now will contribute the exact same amount towards foreign debt reduction than the same amount produced 3 month ago: they don't suddenly need to produce 20x more. On the other hand, if they did sell a significant amount of coffee 3 month ago and saved the profits in bolivars for their old days, or to invest in modernising the farm, their savings just got divided by 20.
      - JoeAltmaier 8y ago
        Isn't it sulfur-laden oil, of no interest in the market unless there's a demand shortage? And in the current market, there's slumped demand, so they can't give it away. Also, renovation of the Venezuelan infrastructure was paid for but not accomplished (graft/corruption). So they're in a hole for efficient production? Finally, food production: they divided up farms and gave small holdings to the workers, who unfortunately had not the education, equipment nor capital to run them. So food supplies tanked, resulting in foreign exchange being used principally to import food. All this added up to, a total fail of the regime to pay for their socialist experiment? Never mind games with imaginary points (currency valuation). The country can't feed itself nor make its own food nor trade its resources for food. They're in a big hole.
- lacker 8y ago
  Consider the implications of a 95% devaluation. That means any foreign debt, which was already problematic, just went up by 20x. In most situations, this is true. In Venezuela, however, inflation was already running at 300x a year before this announcement. (source: https://www.nytimes.com/2018/08/16/world/americas/inflation-venezuela-currency.html https://www.nytimes.com/2018/08/16/world/americas/inflation-... ). So it seems like any functional business must already essentially be operating in foreign currency.
  - jjeaff 8y ago
    It would only ever be true if the debt you owe is denominated in your own currency. Which would be highly unlikely in almost any case except USD or euros or one of a small handful of major world currencies.
    - paulie_a 8y ago
      I have a friend that did large amounts of business with someone in Venezuela. Unfortunately due to the monetary policy the person in Venezuela had to stop doing profitable business with my friend.
    - gamblor956 8y ago
      No, they're right. The devaluation is relative to other currencies, so any debt measured in the devalued currency is now much cheaper when measured against other currencies. I.e., if a debt is VB1000 before devaluation, worth about USD$100, but each bolizar is devalued by 100, then after devaluation, that same debt is still VB1000 but is now only worth USD$1. The devalued debt is now much easier to pay off. However, if the debt had been measured in USD, it would now be 100x more expensive to pay off in terms of bolivars.
  - Izkata 8y ago
    As someone not really following this whole fiasco - does that mean in total it's 6000x compared to a year before?
- wonthegame 8y ago
  How did Maduro's govt mess up their economy? It was my impression that the US placing sanctions on Venezuela was the tipping point.
  - sonnyblarney 8y ago
    "How did Maduro's govt mess up their economy? It was my impression that the US placing sanctions on Venezuela was the tipping point." This is satire? Total dysfunction, cronyism, corruption, dysfunction, (a lot of government debt is held by members of government!) and of course arbitrary government intervention in the economy like forcing retailers to have certain prices, nationalizing private businesses and factories willy nilly and ploughing them into the ground, fixing exchange rates etc. etc. etc.. I could go on. Basically 'everything is wrong' with how they managed the economy. Mass cash inflows from Oil sales can paper over a lot of problems and pay for some infrastructure, healthcare and education for the plebes (which is good), but ironically it can make the rest of the economy very dysfunctional and fragile ... but his 'red revolution' did in realtime what all the red revolutions do. How many times does this story need to repeat itself? Chile is a better example.
    - wonthegame 8y ago
      Some of the reasons you listed occurred after the recent sanctions. You listed dysfunction twice and I don't know what "(a lot of government debt is held by members of government!)" means or implies. Intervention in the economy was also a move employed by Chavez - who was, and still is, well loved by the country. Price control was implement so that the poor would not starve - maybe this was a good idea poorly implemented. Fast forward several years and with foreign goods becoming cheaper than what they could make in their own country = devalued Bolivar + more inflation. Anyways, the point I was making was that it was already set in motion that their economy would crash before Maduro took power. Hence, my statement "How did Maduro's govt mess up their economy?"
      - sonnyblarney 8y ago
        "Intervention in the economy was also a move employed by Chavez - who was, and still is, well loved by the country. Price control was implement so that the poor would not starve" Chavez set into motion that which Maduro continued and is the primary problem creator. Chavez is only beloved by some because he had massive Oil revenues to bribe the plebes with, and he left others holding the bag of the destruction he created. 'Price controls' are a very temporary and ultimately destructive way to do anything and certainly will only guarantee more economic destruction thereby making things much, much worse for everyone especially the poor. Maduro is responsible because he resided over the continuance and embellishment of stupidity. He could have ushered in some responsible reforms, but he did the opposite.
- SilasX 8y ago
  >Consider the implications of a 95% devaluation. That means any foreign debt, which was already problematic, just went up by 20x. It means your iPhone, which was already too expensive, just went up by 20x. WTF. At risk of sounding inflammatory, every time someone complains about inflation, the response is "don't worry, that means your wages go up by the same amount".
  - NullPrefix 8y ago
    >wages go up by UP TO the same amount
- jimmywanger 8y ago
  I don't understand your point. If you devalue your own currency, your foreign debts don't move at all. If you owe 100 bucks plus interest, you still owe 100 bucks plus interest. The amount of bolivars you need just got higher, but no international buyer is going to give a crap about bolivars because they will rightly see bolivars as fake money. Internal debts will be cut by a factor of 20, so if you owe a 5 million bolivar mortgage, suddenly that is much less money. Conversely if you have 5 million bolivars as life savings, they just became worthless.
deleted 8y ago
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curtisblaine 8y ago
> According to Bloomberg, the latest measures are unlikely to provide a quick fix for the economy, and there are risks that inflation will climb even faster The only thing that would help Venezuela is Maduro's government falling, the socialist experiment being called off and a lot of international help. It's not just the corruption, you can't really cap the prices for the sake of socialism and pretend that business won't fail.
Flimm 8y ago
According to the article, the new Venezuelan sovereign bolívar is pegged to a cryptocurrency petro, which itself is linked to movements in oil prices. I know the basics of crytocurrency, but I don't understand how this works. Could somebody explain?
- jerf 8y ago
  I say this with no sarcasm: I'm pretty sure it doesn't. I'm pretty sure this very much is just razzle-dazzle, hoping to fool people for just a little while longer. Contrary to popular belief, even trotted out here on HN in about half our discussions on BitCoin, currencies are not just something that some government said somewhere is worth whatever. They need to back to something. US currency backs to the fact that the US law enforcement and potentially military (if you're big enough) will come after you if you fail to pay taxes, which, while perhaps a bit brutalist and in violation of some of our more delicate follow-citizen's tastes, turns out to be enough to keep an economy humming along. If the Venezuelan government is incompetent enough to have that same delusional view of how currency valuation works... well... behold its results.
  - badloginagain 8y ago
    > They need to back to something Like, say, backed by international oil market?
    - NullPrefix 8y ago
      Petro (cryptocurrency) is backed by Venezuela's oil market, not international oil market.
    - A2017U1 8y ago
      If I buy some of their petrodollar cryptocurrency what is the mechanism which I can redeem it for oil? If I'm willing to pay shipping will they send me a barrel?
      - mhotchen 8y ago
Nokinside 8y ago
So the government just begged bolivar to the government's own cryptocurrency, the petro. We already know that this does nothing. Venezuelan government refuses to reduce the government spending to match the government income. In fact they just announced 3,000% wage increase at the same time. No matter what the name of currency, as long as it's Venezuelan government issued currency, it's going to lose value. There is no way this peg will hold. They just alter the way pedro is calculated or do other shenanigans. Is there betting market for this? I want to bet several thousands against pedro/bolivar.
- ISL 8y ago
  At what odds?
- cat199 8y ago
  So the government just pegged USD to the government's own cryptocurrency, the petrodollar. We already know that this does everything. US government refuses to reduce the government spending to match the government income. In fact they just announced 3,000% tax decrease at the same time. No matter what the name of currency, as long as it's US government issued currency, it's going to gain value. There is no way this peg will fail. They just alter the way petrodollar is calculated or start other revolutions. Is there betting market for this? I want to bet several thousands on USD/petrodollar.
  - Nokinside 8y ago
    Petrodollar's importance for US economy is not that important. The net financial benefit from petrodollar to the United States in a good year is something between 0.3 to 0.5 percent of US GDP. On crisis years it's fraction of that. The main cost from petrodollar is that that the dollar exchange rate is an estimated 5 to 10 percent higher than it would otherwise. This hurts exports.
- theseatoms 8y ago
  Presumably there's some way to take out bolivar-denominated loans?
excalibur 8y ago
So this buys the economy somewhere between 1-3 months while everyone figures out how to game the new system effectively. Then they'll change it all up again!
- jewelthief91 8y ago
  That's called the "lookers fallacy" I believe.
ionwake 8y ago
Does anyone have the current Black market value of a 1 USD in Bolivares? Or a link to where I can find out?
- phonon 8y ago
  https://dolartoday.com/ https://dolartoday.com/ https://en.wikipedia.org/wiki/DolarToday https://en.wikipedia.org/wiki/DolarToday
  - ionwake 8y ago
    Thank you For anyone interested, after the devaluation we still have: Official rate: 10V to 1$ Black market: 60V to 1$
asmithmd1 8y ago
The conspiracy theory version of why the Venezuela economy is a mess, is that they started selling oil priced in something other than dollars: https://www.businessinsider.com/venezuela-publishes-oil-prices-in-yuan-2017-9 https://www.businessinsider.com/venezuela-publishes-oil-pric... The other leaders to risk doing that were Saddam Hussein and Muammar Gaddafi. Selling oil for anything besides dollars is the real line in the sand the US will not let any country cross.
- nostrademons 8y ago
  The timing seems off on that. That article dates from Sep 2017, at which point the Venezuelan economic crisis had been going for 7 years, and been serious for 4. Inflation was 69% by 2014, well before this announcement. I think a more likely explanation is that Chavez instituted a number of policies that were extremely friendly to consumers and hostile to producers, with the result that the producers all left, which meant there were no goods for consumers to buy, which sent prices through the roof and instituted a (un)healthy black market.
- deleted 8y ago
  [deleted]
aatharuv 8y ago
One important thing to note is that the _official_ rate that has been devalued, from 250,000 Bolivares/USD to 6 million Bolivares/USD. The black market rate is already reportedly (as of the past couple of days), 6 million - 9 million Bolivares/USD.
- MBCook 8y ago
  There was a great episode of Planet Money a few weeks ago about the unofficial exchange market and how the government came after them and threaten their lives. https://www.npr.org/sections/money/2018/08/03/635521893/episode-858-venezuelas-fugitive-money-traders https://www.npr.org/sections/money/2018/08/03/635521893/epis...
nhaehnle 8y ago
This article is terrible. > Devalue Venezuela’s currency, the bolivar, by a whopping 95%. The new currency will be renamed the "sovereign bolivar." > Instead of an exchange rate of 250,000 bolivars per US dollar, it will increase to around 6 million. This is not a devaluation by 95%. The math doesn't add up. > The petro is valued by the Venezuelan government at around $60, or 3,600 sovereign bolivars. So 60 sovereign bolivars are one USD? Previously it said 6 million sovereign bolivars are one USD. > To make things more complicated, the new sovereign dollar will also be re-denominated, which will remove about five zeros from its unit measurement. Oh, okay. I assume they mean sovereign bolivar, not dollar (did nobody proofread this?). That makes the above point make more sense. > At the same time, President Maduro also announced a huge 3,000% increase to the minimum wage. > So in the new re-denominated currency, a person on the minimum wage will receive around 1,800 sovereign bolivars a month, instead of 1.8 million. Is that 3000% increase in bolivars? In real terms? And again, I can't see the math adding up, even taking the supposed 95% devaluation. And I haven't gone into any of the cryptocurrency stuff... There's probably a lot of stupidity going on in this new Venezuelan policy, but that article makes a total mess of it on top of it. It's context-free reporting, by somebody who doesn't seem to care to understand what they're reporting, and the numbers just don't fit together. The best I can make of it is: 1. The Venezuelan government still refuses to let the Bolivar float freely, which means that black market currency exchanges will continue to operate. 2. The Venezuelan government is changing the official exchange rate of Bolivar to USD. 3. The Venezuelan government is replacing the bolivar by the sovereign bolivar, where 1 sovereign bolivar = 100,000 bolivar. 4. They're increasing the minimum wage by an effective factor 100 in domestic currency. (The value of the minimum wage internationally will change by a different amount -- and not 3000% -- because of point 2, but any numbers you're getting out of the article are likely moot anyway because of black market exchanges.) 5. They're introducing some weird cryptocurrency gimmick that isn't explained properly. Edit: And here's a Reuters article with different numbers for the minimum wage (stating a 3 mio baseline as opposed to 1.8 mio.): https://www.reuters.com/article/us-venezuela-economy/venezuelan-shopkeepers-alarmed-by-maduros-latest-economic-moves-idUSKBN1L30N4 https://www.reuters.com/article/us-venezuela-economy/venezue...
pastor_elm 8y ago
Anyone know where you can buy Petro? News sounds incredibly bullish to me.
- s3xham 8y ago
  POTUS made that illegal for US citizens
  - c0nducktr 8y ago
    Not everyone on HN is from the USA..
DeepYogurt 8y ago
However this turns out it's going to provide an interesting and multifaceted case study for economists in the future. As far as I'm aware pegging currencies tends not to work well unless there's consensus among countries (see bretton woods system). Further, pegging to an "oil-linked" currency sounds dubious at best. Even ignoring the CC aspect of this; I'm deeply curious to see what falls out.
tim333 8y ago
If they just changed the law so you could exchange bolivars at whatever rate you wanted and dropped import restrictions so you could import/export what you wanted and dropped price controls and subsidies a fair chunk of their problems would go overnight. Instead more weird disfunction seems to be continuing.
- lurker456 8y ago
  That would make some key stakeholders (in the military and govt) quite unhappy, leading to difficulties staying in control, leading to prison or worse for the top. It's gotten to the point that they need to cling to power.
  - cryptonector 8y ago
    It got to that point years ago.
  - repsilat 8y ago
    People are complaining about price controls being relaxed (a bit) on fuel, too. Look at this[1]: > Mr. Maduro hasn’t specified when gasoline prices may start rising. Some of his detractors have started to call his plan a “neoliberal” austerity package that undermines the socialist ideology long espoused by his ruling party. I'm not sure the people would stand for what's needed to fix the problem -- they know they don't want the country in the destroyed state it's in, but I'm not sure they're all on the same page on what's needed to fix it aside from "less corruption please". For the suggestions in the top-level comments that might just apply to subsidies, though. I'm sure allowing imports, exports (and international aid...) would be broadly popular. 1: https://www.wsj.com/articles/venezuela-devalues-currency-and-hikes-wages-stoking-fears-about-instability-1534629512 https://www.wsj.com/articles/venezuela-devalues-currency-and...
- cryptonector 8y ago
  They would also have to return expropriated companies (at least in the food sector) and farms to their rightful owners. None of that would make up for all the lost equipment (to theft, to disuse, to misuse, to lack of maintenance). Nor would any of that encourage new investment (how can you trust that the government won't go back to its old bad ways?). Nor would it bring back all the population that has left for Colombia, Ecuador, and Brazil. But all of what you said and all of what I listed, together, would be a good start. It would also help a great deal to abandon all the violent rhetoric, allow truly free and fair elections, allow the opposition to win when they do, and so on and so forth. Argentina did all of what you said (well, they still have some subsidies), and it wasn't quite enough by itself. The primary budget deficit is still very large and the immediate driver of inflation there. Large welfare state + underdeveloped economy + expropriation == no trust/confidence. Or, how to destroy your country in just a few steps and a just few years.
alangibson 8y ago
Does anyone have a cogent explanation of why they chose to go this way instead of a somewhat orderly default on debts denominated in foreign currencies? It seems to have worked for Argentina, so I'm always surprised when countries don't go that way. (Looking at you, Greece)

149 points by sonnyblarney 8y ago

Consider the implications of a 95% devaluation. That means any foreign debt, which was already problematic, just went up by 20x. It means your iPhone, which was already too expensive, just went up by 20x. WTF. 'Pegging' currencies is a problem, because the country loses monetary policy controls, but maybe they're smart enough to realize that's the problem in the first place ... it's smart to peg it to something petroleum based as the economy is effectively based on that. Perhaps it's a desperate attempt to restore faith in the currency, i.e. it's 'crypto' and can't be tampered with, and attached to something rational. This might actually be the first hard case use for a good crypto: to basically provide 'integrity' wherein the underlying political system has none ... of course, the only way it can work is if the regime has enough self awareness to recognize this and accepts the limitations of the crypto, and the fact it's an admission that they are so incompetent that they screwed up the entire economy and currency. Of course, any smaller nation may still very well simply opt to use USD as it's considerably more liquid and just makes more sense for so many reasons, political populism aside.

IMTDb 8y ago
No it didn't. The foreign debt didn't move an inch. If you needed to sell 1.5 billion oil barrels to repay your foreign debt at $65/barrel, you still need to sell 1.5 billion oil barrel to repay your foreign debt. No change there. On the other hand, all the debt that was issued in bolivars is basically void since a loaf of bread is now worth more than several millions bolivars. All savings are lost, pensions are worth nearly nothing and anyone who trusted the Venezuelan government by buying bonds and/or financing their projects by lending bolivars is fucked. This moves allow Venezuela to technically erase around 1/3 of it's debt, hoping that will allow them to not default on the part that is due in foreign currencies, but scarifying it's own population in the process. Fun times.
- axilmar 8y ago
  > No it didn't. The foreign debt didn't move an inch. If you needed to sell 1.5 billion oil barrels to repay your foreign debt at $65/barrel, you still need to sell 1.5 billion oil barrel to repay your foreign debt. No change there. If you could produce so much oil, then you wouldn't have the debt in the first place. So the debt actually went up by the Bolivar devaluation, because now Venezuelans must create 20 times the value they created before in order to repay the debt.
  - IMTDb 8y ago
    They definitely can produce so much oil. Venezuela produces around 2 million barrels / day and are ranked no1 by proven oil reserve (https://en.wikipedia.org/wiki/List_of_countries_by_proven_oil_reserves https://en.wikipedia.org/wiki/List_of_countries_by_proven_oi...) . So 1.5 billion barrels is completely in their range over several years ! No one said they need to repay the debt tomorrow, as long as they do not default on the foreign debt (which is the whole point of the move) they can restructure it and repay it at their own pace. The issue comes from the fact that during the last weeks/month, oil production has significantly dwindled due to political turmoil. Instead of defaulting on the foreign debt, they sacrificed their own population. They do not need to create 20x the value they created before. The USD price of a Kilogram of coffee did not change at all, so any amount of coffee they would be selling now will contribute the exact same amount towards foreign debt reduction than the same amount produced 3 month ago: they don't suddenly need to produce 20x more. On the other hand, if they did sell a significant amount of coffee 3 month ago and saved the profits in bolivars for their old days, or to invest in modernising the farm, their savings just got divided by 20.
    - JoeAltmaier 8y ago
      Isn't it sulfur-laden oil, of no interest in the market unless there's a demand shortage? And in the current market, there's slumped demand, so they can't give it away. Also, renovation of the Venezuelan infrastructure was paid for but not accomplished (graft/corruption). So they're in a hole for efficient production? Finally, food production: they divided up farms and gave small holdings to the workers, who unfortunately had not the education, equipment nor capital to run them. So food supplies tanked, resulting in foreign exchange being used principally to import food. All this added up to, a total fail of the regime to pay for their socialist experiment? Never mind games with imaginary points (currency valuation). The country can't feed itself nor make its own food nor trade its resources for food. They're in a big hole.
lacker 8y ago
Consider the implications of a 95% devaluation. That means any foreign debt, which was already problematic, just went up by 20x. In most situations, this is true. In Venezuela, however, inflation was already running at 300x a year before this announcement. (source: https://www.nytimes.com/2018/08/16/world/americas/inflation-venezuela-currency.html https://www.nytimes.com/2018/08/16/world/americas/inflation-... ). So it seems like any functional business must already essentially be operating in foreign currency.
- jjeaff 8y ago
  It would only ever be true if the debt you owe is denominated in your own currency. Which would be highly unlikely in almost any case except USD or euros or one of a small handful of major world currencies.
  - paulie_a 8y ago
    I have a friend that did large amounts of business with someone in Venezuela. Unfortunately due to the monetary policy the person in Venezuela had to stop doing profitable business with my friend.
  - gamblor956 8y ago
    No, they're right. The devaluation is relative to other currencies, so any debt measured in the devalued currency is now much cheaper when measured against other currencies. I.e., if a debt is VB1000 before devaluation, worth about USD$100, but each bolizar is devalued by 100, then after devaluation, that same debt is still VB1000 but is now only worth USD$1. The devalued debt is now much easier to pay off. However, if the debt had been measured in USD, it would now be 100x more expensive to pay off in terms of bolivars.
- Izkata 8y ago
  As someone not really following this whole fiasco - does that mean in total it's 6000x compared to a year before?
wonthegame 8y ago
How did Maduro's govt mess up their economy? It was my impression that the US placing sanctions on Venezuela was the tipping point.
- sonnyblarney 8y ago
  "How did Maduro's govt mess up their economy? It was my impression that the US placing sanctions on Venezuela was the tipping point." This is satire? Total dysfunction, cronyism, corruption, dysfunction, (a lot of government debt is held by members of government!) and of course arbitrary government intervention in the economy like forcing retailers to have certain prices, nationalizing private businesses and factories willy nilly and ploughing them into the ground, fixing exchange rates etc. etc. etc.. I could go on. Basically 'everything is wrong' with how they managed the economy. Mass cash inflows from Oil sales can paper over a lot of problems and pay for some infrastructure, healthcare and education for the plebes (which is good), but ironically it can make the rest of the economy very dysfunctional and fragile ... but his 'red revolution' did in realtime what all the red revolutions do. How many times does this story need to repeat itself? Chile is a better example.
  - wonthegame 8y ago
    Some of the reasons you listed occurred after the recent sanctions. You listed dysfunction twice and I don't know what "(a lot of government debt is held by members of government!)" means or implies. Intervention in the economy was also a move employed by Chavez - who was, and still is, well loved by the country. Price control was implement so that the poor would not starve - maybe this was a good idea poorly implemented. Fast forward several years and with foreign goods becoming cheaper than what they could make in their own country = devalued Bolivar + more inflation. Anyways, the point I was making was that it was already set in motion that their economy would crash before Maduro took power. Hence, my statement "How did Maduro's govt mess up their economy?"
    - sonnyblarney 8y ago
      "Intervention in the economy was also a move employed by Chavez - who was, and still is, well loved by the country. Price control was implement so that the poor would not starve" Chavez set into motion that which Maduro continued and is the primary problem creator. Chavez is only beloved by some because he had massive Oil revenues to bribe the plebes with, and he left others holding the bag of the destruction he created. 'Price controls' are a very temporary and ultimately destructive way to do anything and certainly will only guarantee more economic destruction thereby making things much, much worse for everyone especially the poor. Maduro is responsible because he resided over the continuance and embellishment of stupidity. He could have ushered in some responsible reforms, but he did the opposite.
SilasX 8y ago
>Consider the implications of a 95% devaluation. That means any foreign debt, which was already problematic, just went up by 20x. It means your iPhone, which was already too expensive, just went up by 20x. WTF. At risk of sounding inflammatory, every time someone complains about inflation, the response is "don't worry, that means your wages go up by the same amount".
- NullPrefix 8y ago
  >wages go up by UP TO the same amount
jimmywanger 8y ago
I don't understand your point. If you devalue your own currency, your foreign debts don't move at all. If you owe 100 bucks plus interest, you still owe 100 bucks plus interest. The amount of bolivars you need just got higher, but no international buyer is going to give a crap about bolivars because they will rightly see bolivars as fake money. Internal debts will be cut by a factor of 20, so if you owe a 5 million bolivar mortgage, suddenly that is much less money. Conversely if you have 5 million bolivars as life savings, they just became worthless.

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curtisblaine 8y ago

> According to Bloomberg, the latest measures are unlikely to provide a quick fix for the economy, and there are risks that inflation will climb even faster The only thing that would help Venezuela is Maduro's government falling, the socialist experiment being called off and a lot of international help. It's not just the corruption, you can't really cap the prices for the sake of socialism and pretend that business won't fail.

Flimm 8y ago

According to the article, the new Venezuelan sovereign bolívar is pegged to a cryptocurrency petro, which itself is linked to movements in oil prices. I know the basics of crytocurrency, but I don't understand how this works. Could somebody explain?

jerf 8y ago
I say this with no sarcasm: I'm pretty sure it doesn't. I'm pretty sure this very much is just razzle-dazzle, hoping to fool people for just a little while longer. Contrary to popular belief, even trotted out here on HN in about half our discussions on BitCoin, currencies are not just something that some government said somewhere is worth whatever. They need to back to something. US currency backs to the fact that the US law enforcement and potentially military (if you're big enough) will come after you if you fail to pay taxes, which, while perhaps a bit brutalist and in violation of some of our more delicate follow-citizen's tastes, turns out to be enough to keep an economy humming along. If the Venezuelan government is incompetent enough to have that same delusional view of how currency valuation works... well... behold its results.
- badloginagain 8y ago
  > They need to back to something Like, say, backed by international oil market?
  - NullPrefix 8y ago
    Petro (cryptocurrency) is backed by Venezuela's oil market, not international oil market.
  - A2017U1 8y ago
    If I buy some of their petrodollar cryptocurrency what is the mechanism which I can redeem it for oil? If I'm willing to pay shipping will they send me a barrel?
    - mhotchen 8y ago

Nokinside 8y ago

So the government just begged bolivar to the government's own cryptocurrency, the petro. We already know that this does nothing. Venezuelan government refuses to reduce the government spending to match the government income. In fact they just announced 3,000% wage increase at the same time. No matter what the name of currency, as long as it's Venezuelan government issued currency, it's going to lose value. There is no way this peg will hold. They just alter the way pedro is calculated or do other shenanigans. Is there betting market for this? I want to bet several thousands against pedro/bolivar.

ISL 8y ago
At what odds?
cat199 8y ago
So the government just pegged USD to the government's own cryptocurrency, the petrodollar. We already know that this does everything. US government refuses to reduce the government spending to match the government income. In fact they just announced 3,000% tax decrease at the same time. No matter what the name of currency, as long as it's US government issued currency, it's going to gain value. There is no way this peg will fail. They just alter the way petrodollar is calculated or start other revolutions. Is there betting market for this? I want to bet several thousands on USD/petrodollar.
- Nokinside 8y ago
  Petrodollar's importance for US economy is not that important. The net financial benefit from petrodollar to the United States in a good year is something between 0.3 to 0.5 percent of US GDP. On crisis years it's fraction of that. The main cost from petrodollar is that that the dollar exchange rate is an estimated 5 to 10 percent higher than it would otherwise. This hurts exports.
theseatoms 8y ago
Presumably there's some way to take out bolivar-denominated loans?

excalibur 8y ago

So this buys the economy somewhere between 1-3 months while everyone figures out how to game the new system effectively. Then they'll change it all up again!

jewelthief91 8y ago
That's called the "lookers fallacy" I believe.

ionwake 8y ago

Does anyone have the current Black market value of a 1 USD in Bolivares? Or a link to where I can find out?

phonon 8y ago
https://dolartoday.com/ https://dolartoday.com/ https://en.wikipedia.org/wiki/DolarToday https://en.wikipedia.org/wiki/DolarToday
- ionwake 8y ago
  Thank you For anyone interested, after the devaluation we still have: Official rate: 10V to 1$ Black market: 60V to 1$

asmithmd1 8y ago

The conspiracy theory version of why the Venezuela economy is a mess, is that they started selling oil priced in something other than dollars: https://www.businessinsider.com/venezuela-publishes-oil-prices-in-yuan-2017-9 https://www.businessinsider.com/venezuela-publishes-oil-pric... The other leaders to risk doing that were Saddam Hussein and Muammar Gaddafi. Selling oil for anything besides dollars is the real line in the sand the US will not let any country cross.

nostrademons 8y ago
The timing seems off on that. That article dates from Sep 2017, at which point the Venezuelan economic crisis had been going for 7 years, and been serious for 4. Inflation was 69% by 2014, well before this announcement. I think a more likely explanation is that Chavez instituted a number of policies that were extremely friendly to consumers and hostile to producers, with the result that the producers all left, which meant there were no goods for consumers to buy, which sent prices through the roof and instituted a (un)healthy black market.
deleted 8y ago
[deleted]

aatharuv 8y ago

One important thing to note is that the _official_ rate that has been devalued, from 250,000 Bolivares/USD to 6 million Bolivares/USD. The black market rate is already reportedly (as of the past couple of days), 6 million - 9 million Bolivares/USD.

MBCook 8y ago
There was a great episode of Planet Money a few weeks ago about the unofficial exchange market and how the government came after them and threaten their lives. https://www.npr.org/sections/money/2018/08/03/635521893/episode-858-venezuelas-fugitive-money-traders https://www.npr.org/sections/money/2018/08/03/635521893/epis...

nhaehnle 8y ago

This article is terrible. > Devalue Venezuela’s currency, the bolivar, by a whopping 95%. The new currency will be renamed the "sovereign bolivar." > Instead of an exchange rate of 250,000 bolivars per US dollar, it will increase to around 6 million. This is not a devaluation by 95%. The math doesn't add up. > The petro is valued by the Venezuelan government at around $60, or 3,600 sovereign bolivars. So 60 sovereign bolivars are one USD? Previously it said 6 million sovereign bolivars are one USD. > To make things more complicated, the new sovereign dollar will also be re-denominated, which will remove about five zeros from its unit measurement. Oh, okay. I assume they mean sovereign bolivar, not dollar (did nobody proofread this?). That makes the above point make more sense. > At the same time, President Maduro also announced a huge 3,000% increase to the minimum wage. > So in the new re-denominated currency, a person on the minimum wage will receive around 1,800 sovereign bolivars a month, instead of 1.8 million. Is that 3000% increase in bolivars? In real terms? And again, I can't see the math adding up, even taking the supposed 95% devaluation. And I haven't gone into any of the cryptocurrency stuff... There's probably a lot of stupidity going on in this new Venezuelan policy, but that article makes a total mess of it on top of it. It's context-free reporting, by somebody who doesn't seem to care to understand what they're reporting, and the numbers just don't fit together. The best I can make of it is: 1. The Venezuelan government still refuses to let the Bolivar float freely, which means that black market currency exchanges will continue to operate. 2. The Venezuelan government is changing the official exchange rate of Bolivar to USD. 3. The Venezuelan government is replacing the bolivar by the sovereign bolivar, where 1 sovereign bolivar = 100,000 bolivar. 4. They're increasing the minimum wage by an effective factor 100 in domestic currency. (The value of the minimum wage internationally will change by a different amount -- and not 3000% -- because of point 2, but any numbers you're getting out of the article are likely moot anyway because of black market exchanges.) 5. They're introducing some weird cryptocurrency gimmick that isn't explained properly. Edit: And here's a Reuters article with different numbers for the minimum wage (stating a 3 mio baseline as opposed to 1.8 mio.): https://www.reuters.com/article/us-venezuela-economy/venezuelan-shopkeepers-alarmed-by-maduros-latest-economic-moves-idUSKBN1L30N4 https://www.reuters.com/article/us-venezuela-economy/venezue...

pastor_elm 8y ago

Anyone know where you can buy Petro? News sounds incredibly bullish to me.

s3xham 8y ago
POTUS made that illegal for US citizens
- c0nducktr 8y ago
  Not everyone on HN is from the USA..

DeepYogurt 8y ago

However this turns out it's going to provide an interesting and multifaceted case study for economists in the future. As far as I'm aware pegging currencies tends not to work well unless there's consensus among countries (see bretton woods system). Further, pegging to an "oil-linked" currency sounds dubious at best. Even ignoring the CC aspect of this; I'm deeply curious to see what falls out.

tim333 8y ago

If they just changed the law so you could exchange bolivars at whatever rate you wanted and dropped import restrictions so you could import/export what you wanted and dropped price controls and subsidies a fair chunk of their problems would go overnight. Instead more weird disfunction seems to be continuing.

lurker456 8y ago
That would make some key stakeholders (in the military and govt) quite unhappy, leading to difficulties staying in control, leading to prison or worse for the top. It's gotten to the point that they need to cling to power.
- cryptonector 8y ago
  It got to that point years ago.
- repsilat 8y ago
  People are complaining about price controls being relaxed (a bit) on fuel, too. Look at this[1]: > Mr. Maduro hasn’t specified when gasoline prices may start rising. Some of his detractors have started to call his plan a “neoliberal” austerity package that undermines the socialist ideology long espoused by his ruling party. I'm not sure the people would stand for what's needed to fix the problem -- they know they don't want the country in the destroyed state it's in, but I'm not sure they're all on the same page on what's needed to fix it aside from "less corruption please". For the suggestions in the top-level comments that might just apply to subsidies, though. I'm sure allowing imports, exports (and international aid...) would be broadly popular. 1: https://www.wsj.com/articles/venezuela-devalues-currency-and-hikes-wages-stoking-fears-about-instability-1534629512 https://www.wsj.com/articles/venezuela-devalues-currency-and...
cryptonector 8y ago
They would also have to return expropriated companies (at least in the food sector) and farms to their rightful owners. None of that would make up for all the lost equipment (to theft, to disuse, to misuse, to lack of maintenance). Nor would any of that encourage new investment (how can you trust that the government won't go back to its old bad ways?). Nor would it bring back all the population that has left for Colombia, Ecuador, and Brazil. But all of what you said and all of what I listed, together, would be a good start. It would also help a great deal to abandon all the violent rhetoric, allow truly free and fair elections, allow the opposition to win when they do, and so on and so forth. Argentina did all of what you said (well, they still have some subsidies), and it wasn't quite enough by itself. The primary budget deficit is still very large and the immediate driver of inflation there. Large welfare state + underdeveloped economy + expropriation == no trust/confidence. Or, how to destroy your country in just a few steps and a just few years.

alangibson 8y ago

Does anyone have a cogent explanation of why they chose to go this way instead of a somewhat orderly default on debts denominated in foreign currencies? It seems to have worked for Argentina, so I'm always surprised when countries don't go that way. (Looking at you, Greece)