The Bank That Sells $10 Bills for $1

Over on the FT’s Beyond Brics blog, Francisco Rodríguez explains why saying that since Venezuela can’t keep goods markets supplied, it should default on foreign debt is like telling someone...

90-percent-offOver on the FT’s Beyond Brics blog, Francisco Rodríguez explains why saying that since Venezuela can’t keep goods markets supplied, it should default on foreign debt is like telling someone with a toothache that he should call the plumber:

Imagine for a moment that a central bank – any central bank – decided to put up a sign on its front door that said “we sell $10 bills for $1”. Word gets around of the central bank’s Great Dollar Giveaway and throngs of people start massing at its doors. As officials struggle to satisfy people’s demand for dollars, they explore solutions. Maybe they should sell some of those gas stations they bought several years ago. Maybe they should put fingerprint machines at the bank’s entrance to control access. Maybe they should default on the country’s foreign debt.

None of these solutions make sense, because the problem is not a lack of dollars. It is that the government is giving dollars away. No matter how many dollars you provide the central bank with, it won’t be able to keep up with demand. The only way to solve this problem is to change the price of $10 bills… to $10.

This is a theme we come back to often on this blog: blaming shortages on not-enough-dollars betrays a Maduro-scale failure to understand what prices are and what they do: the very basics of economic reasoning.

That the guy on the por puesto can get tripped up over this stuff is understandable but…Ricardo Hausmann?!??

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