
Cash chaos in Venezuela after banknote withdrawn - endswapper
http://www.aljazeera.com/news/2016/12/cash-chaos-venezuela-banknote-withdrawn-161216132241925.html
======
rafaelm
Just when I thought things couldn't get worse here, Maduro does it again.
There are reports of looting in several cities because there is no cash to be
found anywhere. Lots of workers get paid every Friday in cash. Some of them
got paid with Bs.100 bills which are no longer being accepted. So they
effectively have no money to buy food with.

Around 30% of the population here doesn't have a bank account to deposit the
Bs.100 bills. Also, many of the small bodegas don't have points of sale to
take debit cards.

This is just another round of the improvisation game Maduro plays with the
economy here. They promised the new bills would be out yesterday and they are
nowhere to be found.

~~~
viraptor
Since you know the local situation, could you tell me if it's common to see
people use foreign currency for local products? I remember that when eastern
Europe economy was isolated / currency unstable, people sometimes either did
small scale barter, or used US dollars for large transactions (if they could
get any, that is...)

~~~
rafaelm
There is a small market in USD for larger transactions like real estate,
cars,etc. But not for day to day stuff like food.

Some people might have some savings in dollars or euros which they exchange at
the black market rate to get bolivares and live off that. $100 could be used
for a family of 2 or 3 to live for a month.

------
cjlars
One culprit behind Venezuela's hyperinflation is their multiple exchange rate
program. They have 3 official exchange rates levels, with the most favorable
two reserved for government prioritized imports, like food and medicine, and
the third acts as the supposed general rate for all other products. However,
the third rate is not always available so a fourth, 'black market' rate has
emerged, which is higher than any government rate.

So the import lifecycle is this: (1) Political insider secures import contract
and exchanges bolivars for dollars to buy goods abroad. (2) The goods are
never purchased, but instead go 'missing' in transit. (3) The dollars, now
supposedly lost to theft, are exchanged back to bolivares at a much higher
rate. The rate of return on this round-trip is on the order of 1,000%.

Although it's unclear how much money the government is printing and spending
directly, it's this process of exchanging cash into more cash without actually
bringing in any products that drives the inflation. The amount of cash in
circulation skyrockets but the goods in circulation stay the same, or fall,
and so prices need to rise. This process also has the devastating flaw of
making it more profitable to feign the import of food than to actually do it
and so the items most heavily favored for import by the administration are, in
fact, in the shortest supply.

[https://www.bloomberg.com/news/articles/2015-02-19/venezuela...](https://www.bloomberg.com/news/articles/2015-02-19/venezuela-
the-country-with-four-exchange-rates)

------
peeters
> On Sunday, Maduro made a surprise announcement that the 100-bolivar note,
> which is worth little more than two US cents, would go out of circulation.

This math is not checking out for me. xe.com and Google put the exchange rate
at 1 VEF = ~ 0.10 USD. That would make a 100 bolivar note at around $10, not 2
cents.

What am I missing?

Edit: Ah, ok so it looks like the "bolivar fuerte" (VEF) replaced the original
bolivar (VEB) at a rate of 1/1000 due to hyperinflation. I guess the "100
bolivar" note they're referring to is the original.

Edit again: Nope, looks like this is the black market rate as georgeglue1
mentions. Crazy.

~~~
georgeglue1
The officially pegged rate also significantly differs than black market rates
in Venezuela.

~~~
peeters
That's it. Thanks.

So what makes it "black market" outside of Venezuela? Can Venezuela impose
their desired rate on money markets in other countries? If I went into a bank
in another country and purchased 100 bolivar, would it cost me 2-3 cents US?
Or $10?

I always thought foreign currency was an asset like any other that you could
trade at rates determined by the market.

~~~
rafaelm
They can't, but they want to play that that's how the economy works. That you
can place an artificial value on your currency and everyone has to obey. So,
you get a disastrous economy like the one we have.

~~~
ch4s3
>So, you get a disastrous economy like the one we have.

Care to elaborate?

~~~
ChuckMcM
The two sibling comments mention the effects, black markets (trading outside
the rules) and production problems. But they don't mention the 'why'.

People who haven't taken some time to understand microeconomics will look at a
fiat currency and say "Gee, if I can say this is worth what ever I want, I'll
say its worth 10 units", and since they are just paper and ink, if I need a 10
million units to buy something, I'll just print a million of these notes out."
And when you do that you get any number of examples of economies that got
trounced.

The reason is that while there isn't any restriction on naming something, if
it tender for trading goods and services it must have two properties, first it
is has limited supply (for reasons that get explained in macro economics) and
it has to be hard to duplicate (which is needed to keep the supply in check).

So consider the farmer, the butcher, and the feed store owner. The farmer has
to buy feed for his stock, he gives units to the feed store owner in exchange
for feedstock. The butcher needs animals to butcher for selling to people who
are eating them, so he gives units to the farmer for his stock. The feed store
owner is feeding his family so he gives units to the butcher to buy meat to
put on the table.

The units (currency) are all traveling in a circle, farmer -> feed store owner
-> butcher -> farmer -> feed store owner -> butcher -> farmer ... they don't
"mean" anything they are just markers being traded through the economy as it
operates.

You tell the butcher what they have to charge, or limit the number of units a
farmer can ask for his stock, and then the market can't adjust to the changes
in expense. It breaks down.

~~~
jimmywanger
> The units (currency) are all traveling in a circle, farmer -> feed store
> owner -> butcher -> farmer -> feed store owner -> butcher -> farmer

Note that price controls work iff you can dictate prices for each transaction
- the price for meat and feed. Actually, in this case the feed store owner
muddies the waters, as he is not a direct source of production. If you just
think of a cow farmer selling cows to a farmer in exchange for grain, and the
prices for the cows to grain is fixed by the state, everything works for a
while.

Until the farmer realizes that he needs fertilizer for his fields to produce
grain. He goes to the fertilizer producer, who is NOT under the state, and
attempts to buy the fertilizer for the state-set price.

That price is either going to be too high, in which case the fertilizer
producer sells the farmer all he needs and more, or the price is going to be
too low, in which case the farmer gets none. By "too high" and "too low" I
mean the price of fertilizer set by the market, the price where you can both
buy and sell fertilizer.

------
aftbit
I just finished re-reading Cryptonomicon. One of the business ideas in that
book is to create a stable digital currency to replace failing Asian
currencies and help their economies grow. I don't know that an accessible,
anonymous, global, hands-off libertarian digital currency is the ideal
situation, but it would certainly provide some interesting alternatives.

~~~
gozur88
I'm not sure it's possible to create a stable (in the sense that prices for
the things you buy don't go up or down) currency that isn't somehow managed.
If the currency becomes more popular prices will go down. During recessions
prices will go up.

The fractional reserve system, which injects money into the economy as the
economy grows, is an attempt to create that stability. But you'll never create
a workable fractional reserve currency that isn't intimately tied with
government regulations.

The most you could probably ask for is a digital currency that wasn't subject
to the whims of politicians and central bankers.

~~~
h4nkoslo
This is widely known as the "trilemma"; you can have at most 2 of:

\- Fixed exchange rate

\- Free movement of capital

\- Ability to conduct your own monetary policy

[https://en.wikipedia.org/wiki/Impossible_trinity](https://en.wikipedia.org/wiki/Impossible_trinity)

------
johansch
Observation:

The world community really needs to figure out how to deal with failed states.
And the real, live humans that suffer in those states.

The list goes on: Venezuela, Syria, Libya, North Korea, etc.

~~~
rolodato
The problem is that Venezuela's government doesn't recognize that they failed.
They blame all their self-generated problems on US imperialism, subversive
right wingers, counter-revolutionaries and whatever nonsense they can come up
with. So even if there was an international motivation to give help, Venezuela
would most likely not take it. Not to mention the rampant corruption, which
requires force to solve.

~~~
BariumBlue
Generally, most countries don't accept they they've "failed".

NK doesn't think they've failed, nor does Assad, nor any govt. that continues
to stay in power.

~~~
cortesoft
If they continue to stay in power, have they really 'failed'?

How do we define a nation state failing?

~~~
pklausler
My criterion: Are its little girls being educated?

~~~
cortesoft
I think that just means they are a bad state, not that they are a failed one.

------
rb808
Are there any good charities that work in Venezuela? There are regularly
appeals for other poor or war-torn countries but little for such a close
neighbor that seems to really need food & medicine.

~~~
rafaelm
The government would not allow any charities to work here. They do not want to
admit that they have a crisis in their hands.

They recently confiscated a container full of medicine and food sent from
Chile to Caritas Venezuela. Some of the medicine was spoilt, the rest was
confiscated by the government.

~~~
lisivka
Are foreigners allowed to stay in the country for prolonged periods (e.g. more
than year), buy a land, house, flat, open a church, charitable fund, firm?

