Worth Less

By May, Venezuela's highest denominated banknote won't be worth the paper it's printed on. Literally.

Value of 100 bs
Assuming inflation remains at 30% per month, by May no bill in Venezuela will be worth the paper it’s printed on.

The Kejas Vyas’s story on bolivar banknote imports in yesterday’s Wall Street Journal paints a sharp image on the levels of irrationality that suffuse economic decision making in Venezuela today. The stubborn refusal to issue higher denominations bank notes is, at this point, more than just stupid. It’s insane.

Using parallel exchange rates, and taking into account that a bank note calls for fancy security paper and costs around 4 US cents to produce, we come to the alarming conclusion that today, except for the Bs.50 and the Bs.100 bills, Venezuelan money is worth less than the paper it’s printed on.

And, of course, rampant inflation puts an expiration date on the Bs.100 note, too. According to Henrique Capriles, who generally relies José Guerra’s excellent if anonymous sources, inflation in January ran at an alarming 30%. If the currency starts losing value at that rate, as early as May this year every bill in this country will be worth less than the paper it’s printed on.

Cash is on the verge of ceasing to function as a medium of exchange. There are fewer and fewer transactions you can make for less than Bs.100. Most things cost a lot more. A meal is at least 600 BsF. If you take your family out, you better carry a suitcase full of bills with you.

Look at it this way: a bachaqueated roll of toilet paper has 600 sheets and goes for Bs.200. In a year you can expect it to be around Bs.4,600. At the current rate of depreciation, then, a single sheet of toilet paper will cost ­Bs.7.6.

By then, if you have a Bs.2, or even a Bs.5 bills laying around, you’ll be better off conducting transactions with your toilet paper. Which, of course, also means that the natural use for any leftover Bs.2 and Bs.5 notes is…

Rodrigo Linares

Many interests, little time. Mechanical Engineer, first from USB, later from MIT. Making a living as a machine designer.