Venezuelans Abandon Bolivar - Merchants Insist On Being Paid In Dollars

Venezuelans are struggling to carry out basic transactions like purchasing food as the value of their currency, the bolivar, has plunged against the dollar amid the country’s worsening economic collapse.

According to Reuters, over the past year, Venezuela’s currency weakened 97.5% against the greenback: Put another way, $1,000 of local currency purchased in early January would be worth just $25 now. The annual inflation rate in 2017 could reach $2,000. Though at least one other estimate puts the real rate of inflation closer to 2,800%.

Of course, President Maduro has blamed websites like DolarToday – which publishes the closest thing to an official black-market rate by surveying clandestine exchanges in Caracas and other cities – for the spread of black-market activity, part of a conspiracy organized by Washington and his local political opponents to force him from power.

One of the unintended consequences of the bolivar’s collapse has been a social experiment of sorts in the use of digital currencies: As we noted back in October, as many as 100,000 people are now mining digital currencies in Venezuela, defying a government crackdown that’s seen many of them thrown in prison.

But for those who can’t or haven’t resorted to transacting in bitcoin, an increasingly scarce supply of dollars is creating intractable problems for millions of Venezuelans, Reuters reported.

For many, simple purchases like a new tire for their car are simply out of reach.

There was no way Jose Ramon Garcia, a food transporter in Venezuela, could afford new tires for his van at $350 each.

 

Whether he opted to pay in U.S. currency or in the devalued local bolivar currency at the equivalent black market price, Garcia would have had to save up for years.

 

Though used to expensive repairs, this one was too much and put him out of business. "Repairs cost an arm and a leg in Venezuela," said the now-unemployed 42-year-old Garcia, who has a wife and two children to support in the southern city of Guayana.

 

"There’s no point keeping bolivars."

A practice that was initially adopted by shops catering to wealthy and middle-class Venezuelans is spreading to merchants selling everything from foodstuffs to medicine. Food sellers, dental and medical clinics, and others are starting to charge in dollars or their black-market equivalent - putting many basic goods and services out of reach for a growing number of Venezuelans.

"I can’t think in bolivars anymore, because you have to give a different price every hour,” said Yoselin Aguirre, 27, who makes and sells jewelry in the Paraguana peninsula and has recently pegged prices to the dollar. “To survive, you have to dollarize."

 

The socialist government of the late president Hugo Chavez in 2003 brought in the strict controls in order to curb capital flight, as the wealthy sought to move money out of Venezuela after a coup attempt and major oil strike the previous year.

 

Oil revenue was initially able to bolster artificial exchange rates, though the black market grew and now is becoming unmanageable for the government.

Still, President Nicolas Maduro has maintained his predecessor, the late Hugo Chavez’s policies on capital controls, even as the spread between the official rate - some 10 bolivars per dollar - and the black market rate - of around 110,000 per dollar - is now huge.

The trend is angering Venezuelans who don’t have access to dollars. As Reuters pointed out, it also dampened Christmas celebrations this year due to a shortage of pine trees, toys, meat, chicken, cornmeal…the list goes on.

While sellers see a shift to hard currency as necessary, buyers sometimes blame them for speculating.

 

Rafael Vetencourt, 55, a steel worker in Ciudad Guayana, needed a prostate operation priced at $250.

 

“We don’t earn in dollars. It’s abusive to charge in dollars!” said Vetencourt, who had to decimate his savings to pay for the surgery.

Most Venezuelans, earning just $5 a month at the black-market rate, are nowhere near being able to save hard currency.

"How do I do it? I earn in bolivars and have no way to buy foreign currency," said Cristina Centeno, a 31-year-old teacher who, like many, was seeking remote work online before Christmas in order to bring in some hard currency.

While many have begun mining bitcoin, purchasing the digital currency is also out of reach for many, since they would need to first convert their bolivars into dollars.

As the bolivar has continued to plummet, some communities have begun experimenting with alternative currencies that derive their value from a limited supply. In one Caracas neighborhood, several shops have started accepting the panal, one such alternative currency.

With the supply of dollars drying up since Maduro announced that the state-owned oil company would no longer settle payments for oil exports in greenbacks, it’s likely only a matter of time before more of these alternative paper currencies start springing up.

That is, unless the price of oil – which broke above $60 today – makes a surprising and altogether unlikely comeback.

Venezuela"s Grim Reaper: A Current Inflation Measurement - Current Annual Rate 4651%

Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

The Grim Reaper has taken his scythe to the Venezuelan bolivar. The death of the bolivar is depicted in the following chart. A bolivar is worth less, and with its collapse, Venezuela is witnessing today the world’s worst inflation. 

As the bolivar collapsed and inflation accelerated, the Banco Central de Venezuela (BCV) became an unreliable source of inflation data. Indeed, from December 2014 until January 2016, the BCV did not report inflation statistics. Then, the BCV pulled a rabbit out of its hat in January 2016 and reported a phony annual inflation rate for the third quarter of 2015. So, the last official inflation data reported by the BCV is almost two years old. To remedy this problem, the Johns Hopkins – Cato Institute Troubled Currencies Project, which I direct, began to measure Venezuela’s inflation in 2013. We measure the monthly and annual inflation rates on a daily basis. We measure. We do not forecast. 

The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency — the U.S. dollar. As long as there is an active black market (read: free market) for currency and the black market data are available, changes in the black market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.

We compute the implied annual inflation rate on a daily basis by using PPP to translate changes in the VEF/USD exchange rate into an annual inflation rate. The chart below shows the course of that annual rate. Today, a new high of 4651%/yr has been reached (see the chart below).

Venezuela Bolivar Loses A Third Of Its Value In The Past Week

With events in Venezuela now well into the endgame, following US sanctions that named "dictator" Maduro personally and a likely subsequent sanction that will cripple Venezuela"s oil industry promptly resulting in the nation"s insolvency as it loses its last remaining source of revenue, things are moving fast. So fast, in fact, that according to Reuters, Venezuela"s money supply surged 10% in just one week earlier this month, its largest single-week rise in a quarter of a century.

Meanwhile, in addition to now daily protests and strikes, Venezuela is undergoing a major economic crisis, with millions suffering food shortages, monthly wages worth only the tens of U.S. dollars, and soaring inflation - although no official data is available.  The central bank said late on Friday the total amount of local currency in circulation, or M2 as of July 21, was 27.3 trillion bolivars, up 9.66% from the previous week.

Obviously, the exponential rise in M2, the sum of cash, together with checking, savings, and other deposits, also means an exponential rise in the amount of currency circulating. As a result, Venezuela"s money supply is up 384% in the last year. In contrast, the United States" money supply is up 5.5% in the same period.

This means that Venezuelans are forced to carry huge bundles of cash to make basic purchases, if they can afford to do so given weekly price rises on many goods of course.

This means hyperinflation.

Today, the Dolar Today website reported that Venezuela"s black market exchange rate surged past 14,000 bolivars per dollar.

When President Nicolas Maduro came to power in April 2013, it was at 24 per dollar.

Putting the country"s bitter economic end in context, the bolivar has lost a third of its value in the past week.

That takes care of the economy, as for how how socialism ends in a social context, in a poll released today Gallup found the Venezuela is now the least safe country in the world.

Venezuela"s score on Gallup"s Law and Order Index -- its annual global gauge of how secure people feel -- continued to follow the country"s descent into chaos in 2016. The country"s index score of 42 out of 100 was the lowest in the world last year. This number is likely even worse now as the country"s economic and political crisis deepens, including the election on Sunday that critics, including the U.S. and a growing list of nations, are denouncing as a "sham."

Across 135 countries, Law and Order Index scores in 2016 ranged from a high of 97 in Singapore to the low of 42 in Venezuela. The index is based on people"s reported confidence in their local police, their feelings of personal safety, the incidence of theft in the past year and -- for the first time in 2016 -- the incidence of assault and mugging in the past year.

Venezuela"s scores on all of the individual questions that make up the current index were worse last year than at any point in the past decade. Just 12% of Venezuelans in 2016 said they felt safe walking alone at night where they live, and 14% expressed confidence in their police. These are not only the worst on record for Venezuela, but the worst for any country last year -- and for the past 10 years.

To put Venezuela"s 12% who feel safe walking alone at night into perspective, the next-lowest figure in 2016 was more than twice as high as Venezuela: 28% in El Salvador. Among the 12 countries in which residents are least likely to say they feel safe walking alone at night, five are in Latin America. Another six are in sub-Saharan Africa -- including two of that region"s more economically developed countries, South Africa (37%) and Botswana (38%).

At the same time, 38% of Venezuelans said they had had property or money stolen in the past year. This is up more than 10 percentage points from the previous year and a new record high for the country. Only five countries -- all in sub-Saharan Africa -- had higher percentages than Venezuela in 2016. 

"All I Have Is Hunger" - Many Venezuelans Too Weak To Protest Despite Maduro Misery

While tens of thousands of angry Venezuelans turned out for the "mother of all protests" yesterday, facing an increasingly hostile military/police state, the numbers could have been significantly larger but for the fact that legions of poor Venezuelans are simply too frail from starvation to protest.

Some say they are intimidated by armed pro-government militias who scour the slums for signs of dissent. Others say they are afraid to lose the few food handouts the cash-strapped government still provides.

“We wear our protest on the inside for the fear of losing our bag of food,” said San Félix resident Luisa Gutiérrez, a single mother of three.

As The Wall Street Journal reports, President Nicolás Maduro has lost support among the legions of poor Venezuelans that once backed the late Hugo Chávez, but they have largely shown little interest in joining the opposition-led protests that have convulsed the country the past three weeks. Many of the impoverished residents of the vast slums that ring Caracas and other major cities are angry about a collapsing economy and food shortages. But Venezuela’s political unrest remains mostly confined to middle-class enclaves, underscoring the struggle the opposition here faces in trying to unseat an increasingly authoritarian government.

“All I have is hunger—I don’t care if the people protest or not,” said laborer Alfonzo Molero in a slum in Venezuela’s second-largest city, Maracaibo. “With what strength will I protest if my stomach is empty since yesterday?”

Until the slums rise up, Mr. Maduro will likely hang on, analysts say...

Almost two-thirds of Venezuela’s poor, as defined by a variety of socioeconomic factors, want Mr. Maduro to leave, up from 40% when he took office in early 2013, according to pollster Delphos.

The lower classes have also been instrumental in giving the opposition alliance a record two-thirds congressional majority in the last electoral contest, held in December 2015. Polls show the poor would hand the government a drubbing in any vote held this year.

Yet that growing disillusionment hasn’t translated into organized protest, said pollster Luis Vicente León.

Without support in the shantytowns, many opposition supporters fear the current protests will end like the previous wave of unrest in 2014, when three months of demonstrations in middle-class neighborhoods left 43 people dead—without achieving any political change. The failure of those protestshas demoralized and fractured the opposition alliance for years.

“For the masses to come out, they need to feel that they are at a point of no return,” said Félix Seijas Jr., director of pollster Delphos. “We’re still some ways away from that.”

Judging by the eating flamingos, suffering with no toilet paper or soap, and martial law controlling and repressing any anti-government sentiment, we suspect the clock is ticking... as the black-market Bolivar shows...

As Bloomberg details, Venezuela’s black market bolivar is trading at a record low of 4,709 per dollar, according to dolartoday.com, after at least two people were killed when security forces confronted protests against Nicolas Maduro’s increasingly-dictatorial regime with bullets and tear gas. Its weakness is a measure of both the shortage of dollars in the country, and the desperation of Venezuelans to buy food, medicine and other basics, most of which are imported. The official exchange rate is still fixed at around 10, while the legal market-based rate has been allowed to devalue at a controlled pace to 714 per dollar, a 5.8 percent devaluation this year compared with 33 percent on the black market.