Saturday, May 23, 2015

The 400 question

As the Venezuelan currency is in an accelerating downward spiral the real question is not why such a thing is happening; the real question is why would one sell its US dollars for a currency that is becoming more worthless as days pass. I suppose that we could ask the ancillary question of who but we already know that one: the regime, the military, the corrupt "bolibourgeois", the drug launderers and assorted criminals. People with hard earned dollars do not invest them in Venezuela, at most they use them to pay bills they cannot help but pay.

So why sell dollars/euros for bolivars, even if your return rate is 420+ bolivars for one single USD?

There is nothing for sale in Venezuela. Nothing worth buying. All is imported so you would basically buy something that would be sold to you without guarantee at a comparable world price or at a price that is well overpriced. In bolivars nothing makes sense. But in USD they do not make much sense either. Even cars are now traded in US dollars in the black market and soon in the open one, with quite a mark up.

Buy real estate? Maybe. But what for? You cannot rent, you cannot put it to produce given the crisis. At best it is a very long term investment. The only reason for you to part of dollars this way is to launder them. And all the choice properties have long been sold or are not for sale as people holding them usually have the means to live on something else. Why would they sell they property in bolivares that they would have to go to the black market to trade for dollars right away? They would just make a direct arrangement to have a big chunk of it paid already in dollars.

The only explanation that makes some sort of sense in the current situation is that the regime is selling dollars to pay for its electoral campaign. It has nothing else to offer its voters but cash. By the time they realize that the cash they received is worthless it would be too late. Some inside the regime promote speculation so they can get a maximum of bang for the bug to pay the drag the vote in operation required at the end of the year.

As for the regime, see if they care about the damage that the latest bout of money crash will do tot he economy...  the more so that even the NYT is getting on Diosdado Cabello case even if rather meekly.



  1. I sell dollars to help poor families I knew when I lived in Venezuela. I imagine other people do too. Regarding the house purchases, I'm aware of two cases where people who had businesses in Venezuela were loaded with bolivars, made deals to buy properties with the contract specifying bolivars, got the property, and the seller had to deal with people who wanted large amounts of bolivars. And this is where things tend to break down. I think the guys who wanted those bolivars had acces to the cadivi rate. They were enchufaos cycling the currency back and forth. But that was a few years ago.

  2. Yeah I sell dollars too in order to support inlaws in Venezuela as they cannot afford to live.
    When the dollar went from 30 to 40 the same percent gain nobody noticed so bad. The numbers now will get crazy as it goes up 25 percent a nonth or week. People with dollars will not want to sell and people with bolivars will dump at all cost.

  3. Anonymous10:59 PM

    I can tell you with confidence that indictments will be unsealed. I have no timeframe but I do think it's on the agenda all the way up to the WH. They are moving along on this and they are making it happen. I am impressed by the effort.

    1. Anonymous11:00 PM

      where the heck is the great white elephant hunter?

  4. Anonymous4:31 AM

    When you were considering buying some dollars some time ago I suggested you do so.

    My own thoughts on where demand (limited) for Bolivars comes from.

    1) Remittances - this one I think is clear. The parallel rate is so good I doubt many sell officially at 6.3. As the parallel climbed it drew dollars from official exchange

    2) Corruption. Between cycles most will hold in dollars, but many schemes do require bolivars. If you were given the opportunity to buy dollars at 6.3 bolivars, would you not also exchange some money into bolivars to take advantage of the preferential rate? Extend this to almost all cycling schemes. Effectively this moves dollar sales by government at 6.3 to the parallel rate through various approaches (and major profit) - as long as govt continues to supply at 6.3 and even SIMADI, this will help keep pressures down on parallel

    3) Also, businesses with USD earnings must be VERY tempted by the parallel exchange rate if payroll and other costs are in dollars.

    What is weird to me is that the implicito figure is so much lower. This makes no sense. Either the math for the reserves is wrong, or just the stupidity of the government means individuals do not trust the government to be rational. This exchange rate is totally crazy.

    1. Where do the M2 and Reserves data come from? If either comes from Maduro's boys/girls, then why would you believe it to be accurate?

  5. pi314168:25 AM


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