(Death to the Hoarders)
Not much has changed since I wrote the earlier post on the Government creating a third controlled exchange rate which will be managed by the Venezuelan Central Bank. The Bill was expedited through the National Assembly and in a few words the Bill, which has yet to be approved and published by Chavez, modified the earlier foreign exchange illicit Law, such that:
- The definition of foreign currency includes dollar denominated securities, thus buying such an instrument is illegal now.
- The Central Bank is given total control and supervision over the trading of foreign currency and securities such that someone receives foreign currency in the end. This has fines, if the amount is between 10K and 20K $10,000 and jail of 2 to 6 years if it is more than 20K.
- The Law gives almost every relevant Government office competence in policing compliance with the law, including the Consumer Protection Agency, the Immigration Office and the Tax Office.
- The Law appears to ban the trading of bonds held by Venezuelan companies (think banks) in foreign currency. The legal interpretation is that such sales will have to take place thru the Central Bank (I wonder if the Central Bank buys Ukrainian bonds). This is a legal interpretation, if true, the Government wants the controls to be Draconian.
The swap market is dead, as the Central Bank will apparently establish a market of dollar bonds for cash. That is, if you need Dollars you go to whomever is allowed to participate in this, put in your order and the Central Bank will decide if and how much you get of the short term BCV dollar bonds it will sell to you. If you want to sell that bond before maturity, you have to ask this agent to sell it to the Central bank also, that is, there will be no one on one transactions between those holding the bonds, the Central Bank will always be in the middle. If you have US$ and want Bs. you have to buy a bond abroad and offer it for sale to the Central Bank or sell one of those you already obtained earlier.
And I say agent, because it is unknown even who will be able to participate in this market at the BCV. Today’s papers say only Government banks will be able to, insuring the process is more cumbersome and opaque. (Yesterday recently nationalized Banco de Venezuela could not open a new account, because “we ran out of forms”)
Thus, now the Central Bank and the Ministry of Finance have to figure out how they want to set up this and how it will work. This could take days to define.
Of course, in the end, the Government led by the ignorance on economic and financial matters by Jorge Giordani, is attacking the consequences of the distortions and the structural problems, but not the origin of them. Thus, much like the much ballyhooed devaluation and dual exchange rate in January (Another bright idea of the Minister of Finance) this will simply not work. The problem with the parallel swap rate was not speculation, but lack of dollars in the market. This has not changed and will not change in the upcoming weeks or months.
One of the new distortions introduced by Giordani in January was a second exchange rate at Bs. 4.3. This introduced a new level of decision by the CADIVI bureaucracy which essentially decided to give largely at the lower rate, forcing those eligible for the Bs. 4.3 to go to the swap market, adding further pressure to the rate.
And since the dollars are limited and they will be sold at a fixed price to be decided by the bright minds at the BCV, they will be distributed inefficiently and ineffectively (just like Cadivi, this is just Cadivi 3). Thus, the book of orders will grow and grow in time until the Government creates the fourth rate or does away with this silly new scheme.
Of course, a new parallel market, illegal and black, will flourish and the sky is the limit and merchants will use it to fix prices and /or if persecuted, shortages will be truly Cuban style. Inflation or shortages, choose your potion.
Not a pretty picture…
The Devil's Excrement 
December 31, 2012 at 3:14 pm
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but I assumed this publish used to be great.
I don’t recognise who you’re but certainly
you’re going to a famous blogger in case you aren’t already.
Cheers!
December 31, 2012 at 2:27 pm
Good post. I learn something totally new and challenging on blogs I stumbleupon every
day. It’s always helpful to read through content from other authors and use something from their web sites.
December 26, 2012 at 6:17 pm
With havin so much written content do you ever
run into any issues of plagorism or copyright violation?
My website has a lot of unique content I’ve either written myself or outsourced but it seems a lot of it is popping it up all over the web without my authorization. Do you know any techniques to help reduce content from being stolen? I’d really appreciate it.
July 27, 2010 at 12:29 pm
I arrived at this blog by accident and liked so much that I hope to be making more visits. Please allow me two commentaries:
1) The reason why real state prices continue raising in Venezuela, (beyond the international expectations and comparisons) is originated in the fact that they constitute one of the few deposits of value remaining. They have also been and unique form of saving that until now has stood up against inflation. With a current housing deficit of 2.200,000 units (at national level) and with few options for financial invesment, this would continue. I believe that anyone with staying power would do good business buying now. I live in Barquisimeto and when I compare prices with neighboring countries (Colombia, Panama) I believe that (personnel circumstances aside ), real state is not as crazy as some suggest.
2) The level of economic analysis in this Blog is good. Nevertheless, when reading the commentaries on internal politics I feel a little disappointed, specially whith some blogsters claiming that only chavistas and crazy folks remain here. Please remember this; in the last 11 years the country has been deeply divided, half for and half against Chavez. Recent polls indicate, that the majority of Venezuelans reject this madness of goverment and also show that even if we (the oppossition ) do not obtain a clear mayority in next moth’s parelamentary elections we will leave fortified. At least give us some credit for remaining here and to trying to do something while we strill
May 19, 2010 at 1:08 pm
Could someone explain to me the following about “swaps”:
1. When an entity buys a bond denominated in dollars, what does the entity
do after that to get the actual paper money?
2. If most entities are searching for dollars to hedge currency risk
or for imports or whatever, there is a escape of capital, so doesn’t
this mean that eventually there are way more dollar denominated bonds
than bolivar denominated bonds?
3. What is the ratio of bolivar denominated bonds to dollar denominated bonds?
4. Maybe someone can give me a concrete example from start to finish
as to how the swap happens?
5. I am not a Chavista spy! I love Ayn Rand, so that tells you everything.
6. I have to say that Venezuela is a fascinating economics experiment.
Franklin
May 17, 2010 at 8:52 am
Didn’t mean to lump you in with the baddies, Fred. Of course there are going to be others wanting to purchase property that are not “evil”.!
But, “la mayoria” would certainly be among those.
No offense itended, sir!
May 17, 2010 at 8:50 am
Fred:
I have a totally furnished apartment in Vzla that I want to sell.
If interested, let me know your contact details.
I really apologize to the others whom this message doesn’t apply.
May 16, 2010 at 8:38 pm
No, I think Antonio is the “good” Antonio who always writes here, I dont think he is the one that left the threatening note.
May 16, 2010 at 8:31 pm
This most revealing post, which starts with “OK, just tell me what to do” sounds like a chavista trying to pull off an entrapment ploy. But he’s so stupid, so clumsy, he gives himself away.
First of all, it’s in the nature of die-hard chavistas to ask, facing their leader, mouths agape with admiration, ÖK, just tell me what to do!” First rule: Chavistas don’t think for themselves; they need someone else, preferably Chavez himself, to do their thinking for them.
Second: “Ï am not the one to threaten you, I will reduce my comments” Notice the cajoling, underlying admission that “Antonio” is, in fact, threatening MO.
And then the punchline: give me what we’re after (in this case, incriminate yourself by publishing anything that the regime can use to nail you on a charge of conspiring against the national interest, or somesuch claptrap) and we’ll call off the dogs.
And then the billboard-size giveaway in the last line: “I am support(sic) of your line on this blog.”
You see, Antonio and his ilk can’t distinguish between rational, commonsense inquiry and analysis and a “línea”– a line, a party line, an ideological line. You see, most of us who follow MO didn’t really know that MO was following a LINE. But chavistas only know how to follow a line; therefore MO must be following one too.
This seemingly innocuous note illustrates the tragedy, and ultimately the horror, of the ideology-driven mind.
May 16, 2010 at 8:14 pm
Ok, good luck :-).
May 16, 2010 at 8:07 pm
i know its not you, add an initial or something in future comments, at first I was confused.
May 16, 2010 at 8:05 pm
Eric: Let me just say I am concerned, don’t know if I am in the cross hairs, but could be at any time. Got a couple of threats today, dont know if they are real or not.
May 16, 2010 at 8:03 pm
MO, Ok just tell me what to do?
I am not the one to threaten you, I will reduce my comments.
On the contrary I am support of your line in this blog.
May 16, 2010 at 7:50 pm
Miguel, on a personal note, are you under any kind of palpable surveillance, above and beyond the standard email/telephone surveillance that thousands of people in the country are under?
I mean, devilsexcrement is a cornerstone of the Venezuelan blogging community, the go-to site for people who want to understand the arcane implications of this crazy system we have here, and it seems to me that if the regime is going after websites that publish Venezuelan forex info, they’d be looking very, very closely over your shoulder. Or worse.
Are you in the cross-hairs? Can you or do you want to talk about it?
May 16, 2010 at 6:28 pm
Antonio: Someone using your name to threaten to go after me or something like that.
May 16, 2010 at 4:14 pm
Caracas prices in dollars, at the dead swap rate, are high, they would have to come down significantly for it to be attractive.
May 16, 2010 at 4:11 pm
I know my thinking is in the minority, but if you can buy property in venezuela now for a good price and hold on and fly below the radar, when all this storm passes over and the government changes the investment now will bring big dividends then.
what i have seen and experienced in venezuela is that property owners put such high unrealistic prices on their property that noone can buy it. Then if they dont sell if for the listed price they raise the price again and never lower it to what the real market price is. it is way overinflated right now. Its like the venezuelans are still living back in the old oil days when the money flowed. not anymore
May 16, 2010 at 3:15 pm
Nicholas, good Government, good economic and monetary policies is the last thing these guys have in mind, they continue to act the same way as they have acted for 11 years, despite the clear failure of their economic policies.
May 16, 2010 at 3:05 pm
By finding ways of always legally increasing the rate, they keep the currency board system going all the time – because they measure it against forex reserves.
They think like that. It is a mistake to think like that.
When they can start thinking that they can create money via fractional reserve banking then they will ask: what is required to do that?
The answer: good government, good economic and monetary policies.
May 16, 2010 at 3:04 pm
BTW I am writing an article blaming the current fx crisis on that.
May 16, 2010 at 3:04 pm
I think we are there, the printing has been going on for years, the Central Bank has lost the ability to act in the market. If Chavez had not “taken” reserves for his pet project Fonden (60 billion since 2004), the Central Bank could satisfy demand, because it would have double or triple current reserves to fight it.
May 16, 2010 at 3:01 pm
Miguel,
If it is not a fiat currency (and you confirm it is not) – i.e. created via fractional reserve banking – then it is already – technically – a currency board with an ever weakening rate.
You say it is not fiat money: fine, what is it then? A type of self-imposed currency board. Why? Because you measure it´s value against forex reserves.
In Zimbabwe they did not worry about foreign exchange reserves at all: they simply printed quintillions of 100 trillion ZimDollar notes and tried to buy USD with it.
I think Venezuela is heading the same way.
May 16, 2010 at 2:47 pm
Nicholas: When a country imposes exchange controls, it is because that fiat does not exist, the Government, not the markets establish the price. Such is the case in Venezuela nd has been for a long time. The Venezuelan Government imposed exchange controls in 2003 with a single rate at a time when M2 was such that the Central Bank could act in the markets (Bs. 1.5 per US$ at the Central Bank), which was exactly the exchange rate. Today, the Central Bank has little power to act, as there are Bs. 8.5 per US$, but the Government sells US$ at Bs. 2.6. Since there is no trust, the economy and its actors spend all the time trying to arbitrage the Government, while the Government is powerless to act. This is not a currency Board taht is being set up. This is the third controlled rate in the Government. We now have Bs. 2.6 per dollar for certain imports, Bs. 4.3 for others and now this “new and improved” rate somewhere between Bs. 5 and 7.
May 16, 2010 at 2:44 pm
I think Chavez will eventually simply abuse – instead of use correctly – Venezuela´s sovereign right to create money out of nothing via fractional reserve banking: he will simply print BsFs as he pleases thus creating uncontrolled hyperinflation.
May 16, 2010 at 2:32 pm
The Bolivar is suppose to be a fiat currency: that means the central bank and commercial banks can create money out of nothing – out of thin air – as 99% of other economies correctly do at the moment by means of fractional reserve banking. It implies and confirms the monetary aspect of the state´s sovereignity.
Fractional reserve banking creation of money out of nothing – money with no intrinsic value – works well as long as the monetary authorities strive to equate real value in the economy with the required level of money supply. The rate of inflation indicates by what margin they fail.
If one subscribes to or accepts the wrong process in Venezuela of deciding the swap or parallel or black market rate as the result of the volume of BsF divided by the $ foreign exchange reserves one agrees to the fact that Venezuela´s monetary system is a currency board.
A proper currency board forces disicpline in the country in that normally only as many BsF´s would be created as the amount of forex reserves allow – at the decreed rate. That is the business of a serious and responsible government.
By accepting this process of BsF money supply divided by forex reserves, Venezuelans give up the sovereign right to create fiat money based on all the proper value systems in a country via fractional reserve banking like all other fiat money economies work.
Since it is almost sure that Chavez will not abide by the discipline of Venezuela´s self-imposed currency board, he will eventually resort to simply printing BsF with no regard to forex reserves.
I do not agree with this self-imposed currency board system. I think Venezuelan´s should demand that they do not voluntarily give up their sovereign right to create fiat money via fractional reserve banking based on all the proper underlying value systems.
Venezuelans should not accept this self-imposed currency board and demand a proper fiat fractional reserve banking system with proper monetary and economic policies.
May 16, 2010 at 2:18 pm
Not being neg head: BUT it is clear that the Swap market as we know it; is all gone FOREVER.
There is no need for further explanation; we have passed to a strange reality where no one knows anything…. Exchange currency is controlled by this David Koresh wannabe…. We are fighting a cult, with a leader that never rest; 11 years have passed, nearly 2.5 million people voted in PSUV for its internal elections.. How can we explain that? Even when many of them were forced to vote and others were paid, how can some Venezuelans be so blinded as to sell the country to a lunatic twisted mind?
Chavez has done “grossly offensive worst EVER things” to our country:
1- Basic products in scarcity as never seen
2- Electricity shortage
3- Water shortage (and badly treated)
4- Expropriation in a sudden deprive of possession: land and factories.
5- A rampage of corruption: entitling the BIG TRAGEDY of South America.
6- Insults on TV, …… you name it.
CAP was overthrown for far a fewer less things than that..
THE PROBLEM IS NOT THE SWAP MARKET, THE PROBLEM IS :
WHAT ON EARTH IS HAPPENING TO OURSELVES???.
May 16, 2010 at 1:01 pm
Dengue, Chagas and Malaria, the best closed market made by this regime in Venezuela.
All Venezuelan people are been cooking in diseases.
May 16, 2010 at 12:07 pm
Fred:
You are a great soul; return to Venezuela to get closet to your old or ill relatives is a great sacrifice, and you did even with risk or against to your personal economics balance.
I understand you, I have to take my parents out of Venezuela, but My and my parents were the last of our family in Venezuela.
But all our relatives, sons and grandchildren had already emigrated to USA, by the time we left Venezuela.
Sometimes, I understand the people that left abandon their parents because they have to choose between attend their marriages family and their parents.
But, I am not married, so the choice was easy.
It is question of principles, family first.
My best regards and good luck.
May 16, 2010 at 11:30 am
MO…Thanks very much for your response. Yes indeed I had not viewed it as a foreing exchange corralito. Kevin´s repsonse has also illustraded was going to happen inside doors. Ruin of many…others getting richer. Todo los ricos de este pais cojeran loeña del arbol caido…
May 16, 2010 at 11:15 am
You gentlemen are describing the real problem for Venezuela. The dollars (the only dollars) available to large productive segments of the economy for import payments will now now come from the new “black market.” The risk is that the black market’s supply will be limited to those few tens of millions of dollars available from remittances from the Venezuelan expat community. Oil revenues are not adequate to maintain the economy’s normal import requirements and are retained and rationed by the government which has given up feeding the parallel market.
Now, if you own a business: a factory or a trucking business for example, that depends on what should be only a few hundred dollars of spare parts and raw materials, you may face ruin. Now you will have to outbid every other business owner for those few $millions of remittances or close down everything. This will get worse as the electrical problems chew up your capital equipment. It will now be prohibitively expensive to replace equipment. This will also be happening to your local suppliers. Some of them will no longer be able to provide you their products — so where will you go? Do you think that you will import what you can no longer get locally?
Maybe it won’t be so bad, but the transition from a government supported “parallel” market to a black market implies a very disorganized and disruptive import compression for the productive sector. Time will tell. It depends in part about how well Cadivi supplies dollars at the official rates and whether they can spare PDVSA and its domestic suppliers and maintain their operations.
May 16, 2010 at 11:15 am
Gonzalo, it depends what you mean by a corralito. If you think of that as the Government restricting what you can spend from your account in Bs. every month, I dont think the Government is even considering it. As for a foreign exchange corralito, that is what they have done y shutting down all market doors.
May 16, 2010 at 11:05 am
sorry for the mispellings and grammar
May 16, 2010 at 11:04 am
Do any of you guys belive now we are heading towards a banks being nationalize and shorter after that a corralito will fianlly happen? what are the chances of this happening? regards
May 16, 2010 at 10:27 am
Fred,
So nice of you to think more about family.
I almost bought a small home in Margarita last year thinking of how cheap it was( a house owned by an old friend who wants to return to Spain) and thinking about a place where my family and friends could all meet on vacation plus the idea that beach properties can only be a good investment.I own land in Margarita still but have had no plans to build under the present circumstances.
I decided against it because my intuition tells me that things are going to get so bad that it won’t pan out.Usually my intuition leads me right.
There are many people stuck in Venezuela for many reasons, one of which is elderly family, or just family in general…I think it is incorrect to say that only Chavistas would invest.
However some of the properties I have seen online are outrageously overpriced, and cannot see how most properties i have seen for sale could possibly be good investments in the long run unless you are planning to stay forever and rents have traditionally been too high.
But in the end, for family one must do the right thing, and forget about money or even secure living conditions.
May 16, 2010 at 10:10 am
Menat to say: “…..some members in your family as the Chavista ONES” with an “s”
May 16, 2010 at 9:54 am
Deanna:
I guess you’re in worse shape than me. You referred to some members in your family as the Chavista one. At least in my case it’s only the Chavista one 🙂
I’m hoping to move back to the US after 8-10 years. Hope I can last that long in Venezuela. Most in my family feel I will not be happy there, but I gotta give it a try.
P.S. Thanks for your response. It makes feel better knowing that I’m not the only nut case thinking aboubt moving to Venezuela.
May 16, 2010 at 9:40 am
Fred,
You’re not the only one forced to buy property in Venezuela. I bought my house (from my mother-in-law who needed the money) in 2000, just after Huguito came into power; I didn’t want her 100-year-old house which we considered as home for about 2 years to fall into some stranger’s hands who would convert it into a “pension”. Yes, I am always wary of what is going to happen in Venezuela and whether this government will actually seize private homes a la Soviet-Cuban (and during the first Sandinista administration in Nicaragua. I go at least 3 months of the year because I really love Venezuela and want to keep in close touch with my family there (including the Chavista ones). My husband’s cousin also just bought an apartment and moved back after almost 40 years in the States because she also wanted to end her days in Venezuela and because her Social security pension would actually last longer (they are in dollars). Our only hope is that this nightmare is going to end sometime soon, but it’s up to the Venezuelans themselves to get off their a…s and actually make it heppen.
May 16, 2010 at 9:35 am
Roberto,
Don’t forget people with family issues. I just don’t want to be grouped with the shady chavistas … 🙂
May 16, 2010 at 9:12 am
Soooo, the kind of people that would still “invest” in Venezuela are either “shady characters” or “chavistas with money” (is this really two different groups?)
Thank you gentlemen for clarifying a lot about the economic situation.
May 16, 2010 at 8:55 am
I guess I’m out of my mind, but yes, I’m moving back to Venezuela after 26+ years in the US and buying property there. I cannot bring my familily up here and because of family health issues I need to be close to them. Thought about renting, but prices are so high that my money wouldn’t last very long. So the only alternative left is buy a property and …. pray!
May 16, 2010 at 6:42 am
My “tocayo” above forgets one such class.
“You mean to tell me that there is anyone left who would want to own property in Venezuela?”
Yes! Chavistas with money form a part of the population that still will and can pick up properties and businesses. They have the means, the motive and the intent.
May 16, 2010 at 6:20 am
There are plenty of people who would like a Venezuelan home. Between San Bernardino and Lagunitas in Caracas there must be 100,000 million-dollar homes. There are beachfront spreads in Margarita or Puerto La Cruz, or a remote mountain in Yaracuy. Why not? Expropriation has yet to become a risk for private homeowners. And the buyers are often shady characters whose quality of life would be null in their home countries — the most obvious example being drug smugglers.
May 16, 2010 at 1:06 am
I think the point was that a foreigner (or an expat) would have to be nuts to trade dollars for B’s and property that could be expropriated at the whim of a government official.
May 15, 2010 at 11:17 pm
if that is the case, i have lots of bfs i will trade for some properties in venezuela.
how do we get invited to the new dolarparalelo website???
May 15, 2010 at 10:14 pm
Miguel’s right, trading a worthless Bs for a worthless piece of property (because there aren’t property rights) is a fair exchange – the essence of capitalism. Haha
May 15, 2010 at 10:11 pm
Well, most of the bonds in dollars supplied to the market came from the Govt. However, many companies “park” their Bolivars in dollars until CADIVI approves their dollars. Similarly, people who have dollars and need Bs. to live on, for example, do it.
People who still live here, still buy homes and now that their Bs. are trapped here, prices are likely to go up rather than down, what else do you do with the Bs.?
But yes, 95% of the dollar to Bolivar swaps were the Government supplying the market with dollars and generating Bs. to spend.
May 15, 2010 at 10:11 pm
Originally Fred asked about what type of exchange rate he would get. He didn’t mention buying property. Kevin merely suggested that as one way to exchange dollars for BSF’s at a favorable rate. And he’s right. But as Roberto correctly points out – and Miguel has well-documented FOR YEARS – “property rights” in Venezuela are NON-EXISTENT and therefore, to rational beings, property there is worthless.
To all concerned (potential buyers), you can’t say that you weren’t forewarned.
May 15, 2010 at 10:00 pm
Miguel, you run such a great site and your readers are smart (that is why i count myself as one of them :} ).
Now why would anyone, in the entire universe would want to trade a bond in dollars for one in bolivars regardless what the rate is. I would not think a bond in bolivars is worth anything.
In a similar vein, Kevin above said ” I’m sure that if you offer your dollars in the Miami papers or the internet a transaction can be arranged at a very favorable rate with someone who needs to sell all their Venezuelan property.” You mean to tell me that there is anyone left who would want to own property in Venezuela?
From my perspective Bolivars or Venezuelan property have zero value.
So my question is: what is still sustaining the Bolivar or why would anyone want to acquire Venezuelan property with no guaranties? Why there is still a swap (or there was)?
Who are the people doing these trades, what am i missing?
May 15, 2010 at 7:41 pm
I agree, but if you include the Fonden withdrawals in the rate at which reserves will fall for the rest of the year, you will get the wrong picture. For example, it could be they have only spent 1 billion of that, we will not know until a year from now.
It really matters little, in the end, the Government must not have too many US$ if reserves are dropping at a rate of US$ 10.5 billion per year, which is what the numbers say, ignoring Fonden.
Remember, last year, the Government had to borrow US$ 12 billlion between August and November in order to balance the year and Fonden last year had US$ 19 billion at the beginning of the year, 4 at the end. It looks ugly.
I will send you an interesting paper to your email.
May 15, 2010 at 7:34 pm
Miguel,
The question is, “Just what happens to the foreign exchange that goes to Fonden?”
It doesn’t go to helping build houses or some such social programs in Venezuela, he would use the Bs counterpart for that or just print them. Does it go to pet projects, numbered Swiss accounts, deserving foreign socialists or such things that no one would miss? Does it go back to PDVSA to maintain operations for some reason? Does pay for Russian submarines? Is it paying secret foreign debts? Who knows? Only Hugo knows. But the bigger question “Is this something that he can stop?” If he can’t stop it, then you need to count it in the burn rate.
May 15, 2010 at 7:18 pm
Well, I dont count the FIEM, it is not technically reserves. As to the rest, part of it, exactly US$ 5.5 billion was transferred to Fonden, not necessarily spent. Yes, they are no longer part of the reserves, but they are not part of the “balance” between inflows from PDVSA and outflows from imports. Thus, I say
Reserves 31/12/09
35.83-5.5=30.3
Today 27 billion, so the input/output flow is -3.3 billion.I prefer not to count the Fonden transfers, because though perverse, they will not be recurrent, thus they do not help me understand the rhythm at which reserves are and will be dropping all year.
(You can see the Fonden transfers as footnotes in the spreadsheet for the daily 2010 international reserves, footnotes 3-7
May 15, 2010 at 6:50 pm
Miguel,
Are you looking at some other data series than the BCV’s website? I don’t necessarily believe it, but it shows that including the FEM, total international reserves managed by the BCV declined from $35.830 billion on Dec 31 to 28.0 billion on May 13. That is almost $2 billion per month NOT the $3 billion in 2010 that you calculated. Or make it simpler, we are almost half way to Sept 26 — so at the same rate we will be at $20.17 billion on election day. And that is assuming that there is $7.83 billion left in LIQUID forex reserves. I don’t doubt that they can sell some of the gold, but I don’t think they can sell most of it — at least without it being publicly known.
Now if the BCV’s website is not accurate let me know.
May 15, 2010 at 5:56 pm
Remember that in 2003, when exchange controls were imposed, there were US$ 12 billion in reserves and 18 billion in currency (Bolivars). That was Bs. 1.5 per $ at the Central Bank.
Today there are 235 billion in Bs, and 27 billion in reserves, that is Bs. 8.7 per $ at the Central Bank. At 21 billion in reserves it soars to Bs. 11.2.
There is no mystery to the soaring parallel rate, its called economics and math, too many Bolivars chasing few dollars.
May 15, 2010 at 5:50 pm
Kevin, the Government knows at this rate it will be out of dollars if it gives them out as needed. The NA elections are important but 2012 is more, thus if you need to preserve money it is with that goal in mind.
A lot of what is in the reserves is illiquid, there are US$ 4 billion in a PDVSA note, that leaves you with 23 billion (reserves are at 27 billion down 3 billion in 2010), the euro has taken a couple of billions down, gold has given a billion, if oil stays where it is, we will be at this rate at 21 billion by December. So, they can’t give more out, period.
In the end, Giordani is in charge, a fanatic and an ignorant man in economics that said in ’96 that North Korea had a healthy economy. He has been wrong over and over, but Chavez trusts him. The solution goes thru getting rid of the Bs. 2.6 period. This will happen in January or at least way ahead of 2012 to preserve the money. With this new non-market shortages will soar, you can bet on it.
May 15, 2010 at 4:59 pm
Fred,
Are there a lot of dollars? Enough to buy a house? I’m sure that if you offer your dollars in the Miami papers or the internet a transaction can be arranged at a very favorable rate with someone who needs to sell all their Venezuelan property.
May 15, 2010 at 4:47 pm
Let me repeat what I wrote earlier today on the same topic where more people will see it.
Miguel,
This whole system is opaque, so in the end we are really guessing about what will happen. But as you described in your comment to: “As Venezuelan economy unravels due to XXIst. Century Socialism, Chavez criticizes European capitalism” on May 9 at 10:50pm:
“If the Government tries to control the swap rate today, shortages by August will be generalized and things will get worse.
It is not easy to impose controls on the swap rate: You need to change three laws to ban “permutas” , it will take legally a month to do so. During that month the swap rate would soar to 10-12 bolivars in my opinion.
If the Government wants to lower the rate, there is only one way: Provide more dollars to the swap market, there are ways of doing this. After all, the Government is the biggest provider of dollars to the swap market in a very non-transparent and corrupt way. Just that adds one or two Bolivars to the price.”
Miguel, Now look at what’s happened in the few days since and take them in the order 2) 1) 3)
2. Well! That question has been definitively answered. Miguel, you of all people should be aware that questions of legal process just aren’t an impediment to government action. They crack down and then adjust any necessary laws post facto.
1) Ok, now that the government has acted, if you are right (and you are) there will be generalized shortages in August and elections in September. Normally, that is not a sequence of events that governments chose. Usually governments exhaust their resources to make everything look good just before the election and then allow things to go to hell right after. So either there is really no choice or he’s hoarding everything for August and September (when he will also run the generators at full capacity).
3) Maybe the government just doesn’t have the cash flow to sell enough dollars to avoid a violent import contraction. Since the BCV hasn’t published the composition of its assets, we don’t know what it’s liquid forex assets are. If you believe what they do publish, there are $28 billion left and decline rate of almost $2 billion/month. As much as $17 or $18 billion could be gold and not all the remaining $10 billion may be useable (SDRs or maybe claims on the central banks of Nicaragua or Ecuador). That may leave as few as $6 or $7 billion to be used. So it’s quite possible, unless he want to begin a rapid and obvious liquidation of gold for all the world to know about – there is just not enough to prevent a major reduction in imports.
May 15, 2010 at 4:04 pm
Roberto: When the exchange controls of 2003 were imposed, people realized that swaps were not banned, because a swap is something granted by the Codigo de Comercio. Thus, brokers began to do exchange by swapping a Bolivar bond fr a dollar bond at an equivalent price. That is what the swap market was about. The swap market was also a parallel market, because that is what markets differnet than the official one are referred to.
A swap is an exchange or barter of something fr another, you can swap ypur house here for a house in Spain, that was legal.
Under the new BCV “market” (ja ja!) there will be no swaps, they are no longer needed, the BCV will exchage currency for bonds. It can not be currency for currency because that is capped by the exchange agreements at Bs. 4.3. Thus, this new “parallel market” will not be swaps and the rate will be set by the Central Bank.
Antonio: Bs. 4.3 is the official rate for currency sales.
Fred, it is not known at what rate you will be able to chnage yet.
May 15, 2010 at 3:58 pm
Dólar Paralelo Blog is closed, by a totalitarian regime that is in a deny craziness of the reality.
Like I said in comment of the previous post, inflation, devaluation, malaria and Chagas disease are not speculation from speculators. Only reflect a failure of this regime.
May 15, 2010 at 3:56 pm
as well ErneX, http://venezuelafx.blogspot.com is now open only to invited viewers.
May 15, 2010 at 3:26 pm
Miguel can you define for me the difference between “swap maket” and “parallel market”. Are they the same? Are those essentially also equivalent as “black market”. Thank you.
May 15, 2010 at 3:24 pm
Miguel, did you notice that the “Dolar Paralelo” blog was closed? according to Noticias24 the government was trying to get ahold of the owner of that blog. I think it’s now illegal to report such information in any form.
May 15, 2010 at 2:04 pm
I saw advertising from a famous company to send Money through wire.
They say: If you need to send BsF. To Venezuela we exchange to 4.30 by $.
We can assume that with the control of swap market, the regime will try oblige to change or to sell to 4.30 dollars in Venezuela.
If the new market controlled by BCV, if as somebody says will establish a baseline to buy between 5 and a top of 7, now we will have more differential than the swap market.
So, who is the speculator?
May 15, 2010 at 1:57 pm
I may be finally moving back to Venezuela 😦
If I go to the BCV, what kind of exchange rate would I get?