It’s long been a fetish for cranks of all kinds – usually more on the right than on the left. From Glenn Beck fans to Ron Paul hardliners, the gold standard seems to hold a magical fascination. Now, it’s Venezuela’s turn.
Patria Para Todos (PPT) and the Frente en Defensa del Bolívar announced that they will meet with the board of the Central Bank of Venezuela (BCV) to hand in a proposal to confront the “war” against the bolívar and recover its value. This proposal is the so called “Bolívar Oro.”
The secretary of PPT Ilenia Medina says that “in 1800, Venezuela had a gold coin that was used as reference.” This sounds like the return of the gold bolívars, which were unlimited legal tender according to the monetary law of 1887. And, as happened pretty much all over the world, gold coins came into disuse due to logistic and security issues.
However, another member of the political secretariat of PPT, Vladimir Miró, clarified that it would not be “a currency of circulation”, but “a reference currency in the foreign exchange market.” Its support would be in gas, oil and gold reserves.
So the “Bolívar Oro” seems to be a gas, oil and gold standard: the last time we tried to ditch fiat money in Venezuela was between 1910 and 1930.
As happened pretty much all over the world, gold coins came into disuse due to logistic and security issues.
A gas/oil/gold standard might limit the wild currency printing party of the last few months, assuming the peg isn’t changed at will every hour on the hour. However, that is only a small part of the problem.
The bolívar loses its purchasing power with every passing hour because nobody wants it. Since bolívars can only be used to buy stuff sold in Venezuela and local supply of everything has dropped while the BCV keeps on printing bolívars, the latter loses its relative purchasing power.
Nobody wants bolívars either in the international markets, since the government keeps printing them like they’re going out of style. And the government keeps printing them because it spends too damn much and refuses to accept the principle that its expenditures have to be in some sort of rough parity with its revenue.
Adopting a natural-resource peg is a lazy way of sidestepping the underlying issue. Even today, within chavismo, saying “you’re spending too much and too recklessly” is politically verboten. You can’t do it. Still, people thirst for a stable currency. So what do you do if you want to be seen to back a stable currency without calling out reckless spending? You back a crank’s idea of monetary policy: returning to a 19th century technology that worked badly then and works badly now.
So the supposed “war” against the bolívar is actually coming from a Central Government whose policies have discouraged local production and investment and a Central Bank that completely forgot its mission to protect the value of the local currency.