A small commentary on the exaggeration of the Bolivar collapse

For readers of this blog and other keen observers of Venezuelan reality, it has not passed without notice that the black market rate of the Venezuelan Bolivar (VEB) has taken a major dive in front of the America Dollar (USD).

The last time the VEB was below 100 to an USD was October 21, at 98,09. Thus we can calculate that the depreciation of the Venezuelan currency has been of (174.03-98.09)/174.03=43.6% in 51 days. That is, the currency has lost 43.6/51=0.7% per day. A staggering number by any mean.

I am not going to discuss here the consequences of that (for example, most car repair shops are already closing for the annual holiday because no one is selling them spare parts until there is some currency stability, just as my car has troubles).  What I am going to try is to enlighten the reader in that inasmuch as it is true that the VEB has nose dived in two months, it is also true that the real fall may not be as bad as what Dolartoday claims. Which is not necessarily going to reassure you as you will find out (dolartoday itself suggests that, by pointing out "cash" transactions at a distant 157,41 on December 7).

Let's start by a concrete observation. Let's say that you have 100,000 VEB to trade for USD and you go to the Colombian border, at Cucuta, the only place where you can do this in the open. On December 7 you would have gotten 100,000/174.03=575 USD.

What can you do with 575 USD? Not that much. You cannot even travel to Miami from Caracas. If you live in the US, it does not pay you for a month of rent, not even a month of car lease if you need a solid family car.  Heck, you may not even get three weekly grocery stores trips for your family if you eat more than macaroni and cheese.

What can you do with 100,000 VEB? More. You cannot afford a car whatsoever (nobody really except those in non kosher businesses, but that is another issue). However you can feed your family for a full month and more (assuming that you find what you are looking for, another story too). You can have your home repainted. Even in Caracas you may be able to pay 2 or 3 months rent.

My point here is that I, for one, not only cannot afford the 174 rate but even if I could I probably would not, preferring to go out and buy whatever I can, to resell it later as the crisis moves along. That is, I would but at that rate if there were a true immediate life threatening problem (as for a crucial medicine for my S.O.)

I know that you cannot truly compare Venezuelan acquisitive capacity with any other country holding more rational economic principles. There are so many distortions here that it makes such a comparison an end game. Still, 100,000 VEB is more, in concrete terms, than 567 USD. I personally think that if we distance ourselves somehow from the craziness of the regime, assuming that it is directed at their lumpen while they decide what to do, 100 VEB to 1 USD is closer to the truth. What gives? The Cucuta clientele.

See, folks tend to forget one thing: people exchanging dollars like crazy at the Colombian border are not your average Venezuelan (note: as far as I know at Cucuta you can get the exchange rate du jour at different places but you cannot get truly how much is being exchanged; correct me if I am wrong). The people that exchange in Cucuta are in large part people laundering their money; contraband, assorted smuggling, guerrilla extortion, drug dealing, local public employees skimming, and what not. These people are much more willing to exchange at any rate if the political winds are unfavorable, if there is not much to buy inside the Venezuelan border, if oil prices drop too much for their taste.

But political people, from whoever holds dolartoday to the regime main thugs and opposition politicians, passing through manipulative local bankers and traders, find it most convenient for their agenda to support that Cucuta exchange. Then again the regime helps along by keeping up an unreasonable control exchange and not publishing truthful data that would conform the explicit value of the VEB in regards to the USD (reserves / circulating money) that dolartoday itself places at 86.67 on December 7 ("implicito").

Meanwhile, as all of this circus keeps going on, the little money saver, the small business guy, does not know what to do, does not know what to buy, does not know what price to sell, thus feeding the inflationary spiral.  In the end, from crooked politician to small guy, we will all get screwed (though of course the thugs will fare better).

My advice? Do not buy dollars right now, wait for an official devaluation that cannot be long in coming. Go out and buy whatever it is you can find to buy, from canned goods to linen. And sit tight on them. You are going to need them next year.

PS: Of course, all of this may become wishful thinking in a month from now when the black market reaches 200 or 300... I am assuming that the regime will try to cut its expenses somewhat because if not we are on the way to Germany circa early 20ies of last century... And no regime survives that.