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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

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.
      - curtisblaine 8y ago
        Their socialist experiment was unsustainable from the start, to be fair. They effectively killed their internal economy by capping the price of staple goods, driving business to failure and closure in the process.
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.

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.
    - curtisblaine 8y ago
      Their socialist experiment was unsustainable from the start, to be fair. They effectively killed their internal economy by capping the price of staple goods, driving business to failure and closure in the process.

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.