Arreaza's Culprit

I have good news and bad news, Mr. President. The good news is that I think I figured out who's been trying to mess with our liquidity figures...
I have good news and bad news, Mr. President. The good news is that I think I figured out who’s been trying to mess with our liquidity figures…

Days ago, I had a good laugh at VP Jorge Arreaza’s bizarre contention that there was some kind of private conspiracy to jack up the monetary liquidity numbers – an instance of blame shifting that was so wacky, so far over the top, it crossed right into self-parody.

Afterwards, as I mulled over this whole farce, I wondered if, in principle, there is any practical way private players could jack up the liquidity numbers, if they were so minded.

I couldn’t think of any, but one of my egghead economist readers piped in with this:

There is only one way in which a set of private agents can make the central bank increase the stock of currency in circulation: by selling foreign currency to it.  The central bank has to buy dollars from any Venezuelan or visitor who wants to exchange them for bolivars.  So the private sector could conspire to sell all its dollars en masse to the Central Bank and force it to turn on the printing presses.

So Arreaza was clearly right, as the last few months have been marked by nothing so much as a mad rush of private agents scrambling to bring their dollars back into the country for 6 bolivars and 30 centavos each, right? Right?!

Hmmmmm…ok, so it’s not a very promising conspiracy plan.

And yet, I do know of one economic warrior willing to give it a shot:

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  1. Small correction: The central bank has to buy dollars (not bolivars) from any Venezuelan or visitor who wants to exchange them for bolivars.

    At 6.3? A prima fascia absurdity.

    But, Nicolito can always demand that investors do so, instead of merely inviting them, just like he wants to demand that the outside world pay him more than market prices for aluminum. He really needs to be tougher on these outsiders, since they obviously don’t understand their roles here.

    • So if I’m crazy enough to stick my US bank card into an ATM / cash point in Venezuela to get some Bs, what rate of exchange is used?

      • For every bolivar you spend its 0.15873 USD (I wonder why no one mentions this rate, is it that no one wants to buy bolivars?) Some people actually have to do this. For example, foreign business men with corporate credit cards many times have to book or pay in advance their hotels and with rates over 3000 Bs. you can imagine them paying like a night in the Ritz to sleep in the Embassy Suites.(And Izarra blames the lack of touris in the media) It is seldom mentioned how the extremely overvalued exchange rate of the Bs, makes tourism non viable. (that without even mentioning crime)

      • You’ll get nothing. You have to change it at the teller, it will take you 3 hours, and they will need your passport, your fingerprint and a blood sample. To prove, apparently, that a transaction at the official rate actually took place on this earth.

  2. Well there is one scenario that could explain it. Say there was a billionaire getting a divorce, and he/she wanted to get rid of the billions just to spite the divorcing spouse. Also, this billionaire was really into protecting the earth from global warming and felt that burning the money would cause pollution. In that scenario, the Billionaire might want to buy bolivars which are rapidly becoming worthless!!! A brilliant opportunity, isn’t it?

  3. Well, I would argue that there is another way but only under the assumption that the Venezuelan Bolivar can be freely traded in the open exchange market. Just like George Soros did with the Sterling Pound, speculative currency traders could short selling the Bolivar, consequently injecting currency into the economy.

  4. There are ways to increase the money supply, like counterfeit… but I’m not sure is that is the case in Venezuela… check this awesome video from vsauce

    • BTW this comment from NM

      “Los invito a que invirtamos en Venezuela, si usted tiene capital ahorrado en el exterior, tráigaselo a Venezuela”

      Every investor replied with a classy emoticon .I.


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