Worth Less

By May, Venezuela's highest denominated banknote won't be worth the paper is 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…

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  1. There is a forecast by the IMF that Venezuelas 2016 inflation will be in the order of 720% , the rate of inflation usually climbs as the year advances until cummulatively it reaches the forecast figure , if we take the IMF forecast as a basis then the above calculation may be a bit ‘inflated’ .

    Being someone who visits food stores several times a week , I can well believe Dr Guerras 30% figure from simply seeing the rate at which food prices are rising day to day , but maybe the IMF calculation looks at a broader set of pricing changes than I do .

    In any event its quite clear whichever inflation figures we use that in some months the printing of the bills will reach a value which exceeds that which the bills are supposed to represent making their printing a totally insane exercise !!

    The only sensible thing will be to start printing much higher denomination bills urgently , before we reach a point where even paper money will become useless to meet our ordinary cash needs.!!

    Am told that in Cucuta Venezuelan bs bills are already being sought for purchase at a good premium because they can be converted into a kind of paper which is very high priced ……

  2. I have a great idea! It’s called reconversión monetaria! It’ll solve everything!

    I’m only kind of joking.

    Looking at 2007 numbers (that’s the dob of The VEF):

    -the paralelo was 3945
    -the oficial was 2150 (wow, almost HALF! That was crazy)
    -highest denominación billete was 50000
    -UT 37632
    -average oil price 65,1
    -The hit song was “this is why i’m hoy”
    -pirates of The caribbean was The highest grossing movie

    Maybe in that info lies the key to justify doing that shit again, it won’t solve anything but at least we could be printing money that at least will be kind of usefull down the line.

    I know, I know, it’s not a solution…

  3. This ‘bachaquerismo monetario’ is a well known practice in the country. As far as I know, they buy the bills at 120bsf per unit and transfer the money. They are basically profiting from the low real value of the currency. So in one hand you have the Govnmnt spending billions of dollars to put money in and a lot of people taking money out of the system (I’m guessing also to earn dollars).

  4. A sign that Hyperinflation has arrived is when people start using note bills as toilet paper.
    I am not surprised.
    Maduro didn’t even finish high school and the scandal is around of his place of birth?!.
    I hope that the proposed amendments to the constitution requires Presidential candidates to have at least a High School diploma.

  5. In El Nacional: “”The attorney general cannot be questioned because that would violate the independence of the public authority,” stressed Venezuelan Attorney General Luisa Ortega Díaz in an interview with private TV channel Venevisión.

    The official also conveyed that she was willing to explain the figures in her annual report for 2015 submitted to the National Assembly on Tuesday. “For the sake of peace and calm for Venezuelans, I can clarify any doubts regarding the report, but in a context of respect and dialogue,” Ortega Díaz added.”

    Sounds like Luisa will be “wiling to the figures,” but that the assembly will not be allowed to “question” her, out of “respect ,” yada yada.

    At some point someone will HAVE to account for this mess. Wonder when? That will be a show I will watch.

  6. Thats interesting , the Fiscal, who is not an elected official but an Asamblea appointee cannot stand accountable to the Asamblea because its ‘independent’, if so why under the Constitution does she have to report her activities to the Asamblea , so they can hear her voice ?? Does she pretend that she is legally untouchable what ever she does ??

    • Heard something similar from someone whose family purports to be close of that of one the economy bosses , the gasoline price increase supposedly to be accompnaied by some kind of rationing , Carnival is the best time for announcing these things because people are in a relaxed holiday mood and a mass violent response is less likely!!

  7. This is a very interesting problem in Venezuela now. Cash in hand is becoming more valuable than in the bank because it’s easier to use for black market transactions (and real interest rates are negative).Therefore, a 100BsF bill is worth more than a 100BsF in the bank. In fact, I’ve heard stories of people whose job is to take BsF in cash across the border with Colombia and charge a premium via transfer.

    I guess in Maduro’s, Salas’ and Merentes (let’s not forget he’s in charge of BCV) empty heads the idea of generating this currency scarcity is to partially control or limit these black market transactions. I don’t know if it’s so much being stubborn or generating a de facto control on transactions. The effects of this policy will be bigger distortions on the allocation of goods and a rebirth of barter. I guess there is no easier way to go back in time than Bolivarian Socialism. Are you sure is a good idea to keep Maduro in power? at this velocity we could go back to the Stone Age soon enough.

  8. Maduro se supera a sí mismo cada mes. No puedo creer que esto pueda durar ya muchos mas. Espero al menos que así ocurra pero cuando lo haga echaré de menos todo este absurdo y todo este disparate. Lo de que sería mejor comerciar con toilet paper es poner los límites de la estupidez muy altos (también los de la crueldad, teniendo en cuenta la importancia del tema)


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