Venezuela’s Currency Manipulations Are Destroying Their Economy

venezuela bolivares

Pretty. Worthless.

From the WSJ: Currency Chaos in Venezuela Portends Write-Downs

The Gentleman Economist once visited Venezuela, enjoying Caracas, Merida, Angel Falls, a quiet Andean village and a jungle adventure involving riverside hammocks and three days in handmade dugout canoes.

Being an OPEC country, gasoline was priced at USD 0.05/liter. It was a bad omen. Since this visit, the Bolivar has declined in value by a factor of 2,000.

The short term benefits of inflation and currency controls must still be appealing to Venezuela’s politicians, as they’ve now added a third “official” currency exchange rate – not to be confused with the actual free market rate. U.S. Dollars (required for imports, because nobody outside the country will take Bolivars) now cost 6.3, 10, or 50 Bolivars, depending upon your politically chosen industry category, while on the street they sell for 70.

With an immediate windfall of up to 11-to-1 for dollars leaking from official channels out into the street, I wonder what portion of political and business entrepreneurs’ efforts are now directed towards simply acquiring subsidized dollars.

Meanwhile, the economy is in chaos. Inflation is so bad that six years ago the “old” Bolivars were replaced at a rate of 1000-to-1 for the new “Strong” Bolivar. A sure sign your government inflated away the value of your old currency is when they roll out the new one with the word “Strong” right there in the name. Let’s just say Switzerland never did this.

Crony capitalism ensures political insiders get rich on the exchange rate while the masses suffer under inflation, shortages and propaganda. The Venezuelan people deserve better.

This entry was posted in Corruption, Crony Capitalism, Currency, Economics, Inflation, Markets That Won't Clear, Money, You're Not Helping and tagged , , , , , , , . Bookmark the permalink.

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