So did you see all the insanity in Cyprus over the last few days? Man! For reasons too complicated to go into here – but which will surely feature in Macroeconomics books for a generation to come – the Cypriot government found itself forced to just grab a chunk of all depositors’ savings. Just like that!
The “one-time contribution” – which will range from 6.75% for small depositors to almost 10% for those with over 100,000 euros in the bank – has caused an enormous stink, destabilizing financial markets all over the world, rattling the European Union, creating a diplomatic crisis with Russia and generally sending Cypriots into pitchfork-wielding-mob mode.
I mean: of course! Economic policy-making doesn’t get any closer to armed robbery than this, does it? They just decided to out-and-out grab a bunch of cash indiscriminately from everyone with a bank account, from multinational firms to little-old-ladies with their retirement savings in the bank. Wouldn’t you be superfly-TNT, too?
Actually, you wouldn’t be…because, as it turns out, just over a month ago the Venezuelan government grabbed a much bigger chunk of your savings right out of your bank account – hell, right out of your back-pocket, if you happened to be carrying cash and…nothing much happened!
Why? Because Merentes & Co. were much sneakier than the Cypriots. Rather than calling it a “one-time contribution” and letting you see exactly how much of your money was being swindled from right under your nose, they called it a “devaluation”, which means you keep the same number of bolivars, but buy less with each of those bolivars.
Exploiting our irrational – but very human – aversion to losses, they managed to screw us three times more than the Cypriots got screwed and got nary a peep in protest.
If anything, devaluing is way more regressive than a Cypriot style move. At least in Cyprus they get to retain some level of progressivity by taxing big depositors at a steeper rate than small depositors. You can’t do that when you devalue – it’s just a straight out flat-rate hit on everyone. And yet, though nobody likes it, nobody really freaks out. The reason, I think, is that the day after devaluation, the number of bolivars you see in your bank statement is the same, and that somehow makes us feel better.
And that…that is the genius of devaluation.Caracas Chronicles is 100% reader-supported. Support independent Venezuelan journalism by making a donation.