Dropping the Exchange Market Baton

Within the last 24 hours, the government has both a-formally outlawed the dollar swap market and b-missed its deadline for agreeing a mechanism to replace it. They’ve pretty much dropped the baton in the relay race that is the exchange policy changeover, leaving the country with no legal alternative to the sclerotic, barely functional Cadivi mechanism for allocating foreign currency.

The scale of irresponsibility involved here is just staggering. The government has just outlawed the key way people finance imports in a country where almost every consumption good is imported. It’s like they’re trying to engineer shortages. 

As the Central Bank and the Finance Ministry fight it out over the exact shape that the new "third market" should take – it was plainly too much to ask for them to agree these things before taking the plunge – speculation is rife.

Descifrado reports the "third market" will consist of a narrow, BCV-administered band between Bs.5.20 and Bs.5.80 per US$. Trouble is, there are plainly not enough reserves at BCV to defend a rate that low…not after the Nth "millardito" raid, anyway.

If the parallel rate turns out to be just a third control rate well below equilibrium, that market is just not going to set prices for the economy. Doing it this way would just be courting a black market, with all of the gangsterism, scope for blackmail and intimidation that entails.

And the shortages. Especially the shortages. Whether they realize it or not, if they really go down this route, they’re basically choosing to adjust through the expedient of making more and more goods unavailable at any price. 

Comrades, I have seen the future, and it looks like this:


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