Photo: Correo del Orinoco

In the list of economic measures needed to fix Venezuela, slashing zeros off the currency ranks pretty low. It’s a cosmetic fix, and yet it’s the only measure the Maduro administration is set on applying.

This lame strategy comes right from Chávez’s playbook. Back in 2008, they eliminated three zeros off the currency so it seemed stronger. To drive the rebranding home, they even changed the official name of our currency from “bolivar” to “strong bolivar.”

It’s a cosmetic fix, and yet it’s the only measure the Maduro administration is set on applying.

It was a costly and confusing publicity stunt, but they pulled it off. I was in school back then, and I remember getting a class about it from the BCV promoters. Of course, they had to replace all of the banknotes with new ones, a transition that made us Venezuelans develop the annoying reflex of dividing everything by 1,000. Outsiders are always weirded out by that.

If something costs, say, 32,000 strong bolivars, I convert it to the format I’m used to (32,000,000) to get an idea of how much this really is. Sometimes I do it by accident with things that aren’t even bolivars. Thanks, Chávez.

Ten years later, we have Maduro provoking the highest inflation in our history, trying the same stunt, but in pretty different circumstances. This is like a “reconversión” with the rayo madurizador.

The thing that makes this reconversion the lamest play in the history of everything is that they chose to eliminate five zeros.

Not three.

Not six.

Five.

(╯°□°)╯︵ ┻━┻

Back in March, they announced the elimination of three zeros, and stores were preparing for that. The government made them show the two prices simultaneously. If changing prices every single day is a hassle, just imagine having two prices on every item.

They even showed the new bills, and we made fun of those.

And then, out of nowhere, Maduro comes on TV to make economic announcements.

“You know what? Three zeros is too little,” he says, and I paraphrase, “let’s make it five, let’s eliminate five zeros now.”

Dude, we already made the mental work for you because with three, we knew what we were dealing with. Eliminating five throws us into a confusing bat-country where nobody knows what’s the price of anything.

You know what? Three zeros is too little… let’s make it five, let’s eliminate five zeros now.

People have already assimilated that changing the value of our currency doesn’t do jackshit to fix the economy. At this point, there’s nothing Maduro could say or do to convince the majority that eliminating zeros off the currency will help. We’ve been down that road before.

That alone makes this conversion pointless. The thing about illusions it that they’re either completely convincing, or they’re not.

Then we have the fact that they don’t have enough money to print the new banknotes. Did you know that, right now, cash represents only 1.5% of all the money in circulation?

I guess you could argue that using smaller numbers to pay would make our lives easier, but that’s just temporary. It’s been ten years since the last reconversion, but it won’t take ten more to bring those zeros back. We are in hyperinflation, we’ll be talking about trillion-bolivar empanadas in no time.

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15 COMMENTS

  1. Brazil did this in the 80s. I don’t know how many times, but it first went from crucero to crucado, I think, or something like that. It may have then become the real.

    I was there in ’86 or ’87, and although the taxis had meters, they had a sheet taped to the window indicating today’s higher converted fares based on the inflation. It would have been impossible for the drivers to recalibrate their meters every day to reflect the inflation.

    On a side note:

    Every man should visit Rio before he dies. And if you’re happily married, leave her at home.

    God gives you a pass on this one.

    • The Plano Real was a extremely well articulated plan of FHC, when he was finance minister of I Franco after the impeachment of Collor de Melo. I lived in Brazil for 7 years and worked with my office during a total of 20 years. Brazil used to be a self-sufficient country, during the worst time, early 90’s you didn’t scarcity and there were not play games with the ROE. Asides that, bank interest rates followed inflation and everything else was the same (ref. The table inside the taxi cabs). Please don’t opine about Brazil. Their situation has absolutely nothing to do with this shithole of Venezuela and Venezuelans. I can give anyone here a class on hyperinflation.

      I agree with one thing only: you ought to spend a Carnival in RJ. While young, put that in your bucket list.

  2. Once upon a time (two years ago) these upside-down backwards inside-out twisted around leftist economists claimed that their inflation was caused by larger denomination notes (and by the publishing of real exchange rates). So they outlawed the existing largest note and refused to issue larger denominations which would have slightly eased el pueblo’s burden of coping with worthless currency.

    Now they issue larger denominations by replacing the old currency with a new currency, adding to el pueblo’s burden. (Even Zimbabwe just kept adding zeroes to their notes.) Please stop believing that leftists’ cruelty toward their own people is not intentional.

  3. Of course, they had to replace all of the banknotes with new ones, a transition that made us Venezuelans develop the annoying reflex of dividing everything by 1,000. Outsiders are always weirded out by that.

    I first arrived in Argentina about a DECADE after there had been a similar conversion- a 100 to 1 conversion. Not far from the airport, the taxi stopped at a street-side vendor for some snacks. I purchased a sandwich. The price was 500, I was told. I handed 500 pesos. No, the vendor said, 500 thousand of the old pesos. That would be 5,000 of the new pesos. Which I handed him.

    It didn’t take long to adapt to the 100 to one change. A million old- also known as “un palo” or “un millón de mango”- was 10,000 new.

    There were several more conversions before Argentina finally stopped hyperinflation. It turned out that stopping hyperinflation was a lot less painful than had been anticipated. A substantial cause of printing currency was to cover the deficits of all the government owned companies- airlines, telecom, railroads, electricity, oil, etc. After selling off many of those companies, there was no deficit to cover and thus no reason to print money.
    Inflation began with the Peronists, continued with the Junta, continued with the newly elected Radical government, and finally ended when the Peronist elected after the 1989 collapse sold off the “prize jewels” – the deficit generating government owned companies.

  4. You’re not seeing the actual goal behind the elimination of exactly FIVE zeros:

    To obsolete ALL the previous notes in a single sweep, to leave the country WITHOUT CASH and thus paralyzing EVEN more the people’s chances to even buy stuff by themselves outside the cha-garbage monopolies (Since they’re also stealing all the sell points they can to re-sell them at 600$ in the public banks)

  5. There were several more conversions before Argentina finally stopped hyperinflation. It turned out that stopping hyperinflation was a lot less painful than had been anticipated. A substantial cause of printing currency was to cover the deficits of all the government owned companies- airlines, telecom, railroads, electricity, oil, etc. After selling off many of those companies, there was no deficit to cover and thus no reason to print money.

    Inflation began with the Peronists, continued with the Junta, continued with the newly elected Radical government, and finally ended when the Peronist elected after the 1989 collapse sold off the “prize jewels” – the deficit generating government owned companies.
    ———

    This model does not wash with the Chavistas for several reasons. First, the “prize jewels” have been gutted and rendered basically useless through the Chavistas neglect, incompetence and brazen theft. The only way to rebuild the infrastructure of the power, telecom, metro, oil, and other “companies” is through titanic investement, which no foreign company would make without guarantees. Since the Chavistas honor no guarantees, ever “deal” is seen as a sucker’s bet since all funds marked for whatever project will simply be bilked. Only if foreign investors would be allowed to rebuild on their own terms would investment be possible, and the Chavistas are incapable of doing ANYTHING on the terms of others. Ergo any rebuild with the Chavistas in power is a non starter. Ain’t gonna happen.

    • Ergo any rebuild with the Chavistas in power is a non starter. Ain’t gonna happen.
      Yup.
      “Fool me once, shame on you, fool me twice, shame on me.” No foreign firm would be so stupid as to enter into a deal with deal-breaking Chavismo

  6. Ira is right. There are plenty. But none at this point who will pay real money for the pleasure. And without real money the infrastructure cannot be salvaged. All deals are futures scams. The only reason outfits like American Airlines are still hanging on is they are simply waiting out the Chavista’s demise. None of their business is done in Bolos anymore., nor is it passing through Venny banks. Nothing is. The banking sector has gone bust.

  7. Ulamog is onto something with his short sentence. The problem overall is the ignorance about what inflation is, why it transform in hyperinflation, etc. And please don’t compare with Argentina or Brazil, essentially you don’t know what you are talking about but if you want detailed information, please write to separately on my personal email address: [email protected] or Twitter @Pepe1950 once we connect, I’ll provide my work email.

    Venezuelan inflation is the result of many factors being the worst of the excess of control on the control of everything. Since 1958, controls have been the way to direct masses to vote one direction or another.

    The fundamental concept of inflation is generally a conflict between offer and demand. What’s first the egg or the chicken?

    Venezuelan have very specific behavior; it’s overly exaggerated and sorry for the pleonasm. i.e. The country suddenly realized there were not enough dollars to satisfy the insatiable, insane and absurd need to buy brand clothing and, to travel outside the country, among many other ”rights” they feel they were born with.

    Whenever you say brand clothes or traveling abroad, that means tons of dollars per capita. Not surprisingly the country has always given priority to Spending vs. Investing

    They don’t understand that this ill behavior translate into transferring dollars from Venezuela to foreign countries of foreign manufacturing or foreign providers of good and services.

    Therefore the more the merrier, right? Well, no. There will never be enough dollars in the world to satisfy that ”need”

    Another, a super weak link: if you have it, I must have it too.

    This behavior results in an extraordinary demand of USD vs. a USD offer that can’t be met. Then the BCV or the Treasury starts the diabolic printing machine, of monetary mass M1/M2. Google it.

    In a simplistic way: x/y = ROE in USD/LOCAL CURRENCY. ROE doesn’t track inflation in the short term, but I can demonstrate using Brazil as an example from 1980 to 2010, the ROE tracked both inflation and interest rates.

    We can see that if Y trends to ∞ the value of ROE is close to ZERO. Just what is happening with the poor Bolivar. It’s worth nothing of nothing

    Now, I’d like bloggers to offer concrete ideas to kill the hyperinflation.

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