Photo: Venepress retrieved

Let’s get the easy part out of the way: Any ATM abroad will still laugh at the sight of a debit card from my account in bolivars. So, no, the exchange controls have not been lifted, no matter how many times government officials yell “Free convertibility!” and no matter how many times the phrase appears in official documents, or is repeated by gullible journalists.

We’re still in Kansas. But Kansas changed.

For the past 15 years, Venezuelans have had their money trapped in Bolivar Hell, a place where money loses value fast, and saving in bolivars is a losing proposition. There used to be two ways out of Bolivar Hell: You could go through the official markets, where dollars were sold cheaply, but you could only take a limited amount. That door was all but closed around three years ago, except for those connected to the highest levels of the chavista machinery.

No, the exchange controls have not been lifted, no matter how many times government officials yell “Free convertibility!”

For the rest, it was the unofficial black door. The black market is unlimited, illegal, sometimes sketchy, and you’re paying a higher rate than that which would prevail without exchange controls.

Last Friday, the government took another crack at creating an official way out. The new Exchange Agreement, which governs how foreign currency is traded in the country, created a new world for Venezuelans’ money: Dollar Heaven, where you can use dollars freely and legally. You can have accounts in dollars, in Venezuelan banks, with debit cards linked to them that will actually work abroad, withdraw and deposit in cash, make international transfers, and enter into contracts. Everything in greenbacks.

Wild, I know.

Unlike past Exchange Agreements—which focused mostly on how the government’s dollars would be “allocated”—this one focuses on how private dollars will be sold. The government is out of dollars; now it wants yours. They are looking beyond our borders, and they like what they see.

Since the black market is illegal, its transactions never touch the Venezuelan banking system. They are moved around in foreign bank accounts, PayPal, bitcoins, or cash, with a corresponding transaction (in bolivars) in a Venezuelan bank. That’s how Venezuelans abroad are sending remittances to their families still in the country.

The government is out of dollars; now it wants yours.

The government’s plan is for Dollar Heaven to be populated by those private dollars, since it doesn’t plan to sell any. They want people to stop using the black market, and use instead dollar-denominated accounts in Venezuelan banks, and the Venezuelan diaspora should send remittances straight into their relatives’ accounts.

But, don’t forget, this is a chavista plan, so there’s a commie catch. While it’ll be easy to get a dollar from abroad into Dollar Heaven, it’s unclear how difficult it would be to convert bolivars from Bolivar Hell into dollars in Dollar Heaven. There’s a gatekeeper called Sistema de Mercado Cambiario (SIMECA?).

As far as we can tell from the agreement, a bolivar does not simply walk into Dollar Heaven.

The gatekeeper SIMECA is an exchange market managed by the Central Bank. In typical chavista fashion, it won’t be a straightforward, unregulated market where people can see what others are bidding/offering, decide whether they want to sell/buy at those prices, or submit their own orders. Instead, it will be a black box: an auction system where bids and offers are submitted blindly, and the Central Bank will match the closest bids and offers “with an algorithm”.

And from those matches, the Central Bank will calculate an average rate, which will be the official exchange rate.

A bolívar does not simply walk into Dollar Heaven.

If that sounds familiar, it’s because it already exists and it’s called DICOM. What’s new in SIMECA is that they do away with some of the limits, and codify their previous announcement of depenalizing trades in foreign currency. Having read the Exchange Agreement, it seems that trading in dollars is no longer illegal—as long as you do it the legal way, which is SIMECA.

The SIMECA system—if we dare believe the agreement—will be unlimited. You can place offers and bids for any amount you want. Here’s where this gets really chavista: the Central Bank reserves the right to buy all dollars that are left unsold in SIMECA when supply exceeds demand. So the bank could just “fail to match” bid orders, discarding private bids for whatever excuse, and then buy the dollars themselves with freshly minted bolivars—and at a price set by them. And no one will know because SIMECA will be a black box.

SIMECA will have a little brother at the bank level, where people can make retail transactions at the official rate calculated in the big-boys market. Just what “retail” means, we don’t know. The agreement says you can sell up to 8,500 euros through banks, but says nothing about limits for buyers. History tells us there will be a limit, even if they didn’t spell it out at first. And here, too, the Central Bank reserves the right to buy any dollars that don’t find a home, at their chosen price.

The open question is then whether anyone would actually want to send their dollars to Dollar Heaven. Whether SIMECA and its little brother see any significant volume will depend on the gap between the official and the black market rate, and what limits they impose. But even if the rate is competitive and there are no limits, there are still good reasons for people to keep using the black market and stay the hell away from SIMECA.

The same government that spent 15 years driving away dollars and persecuting those that traded in them outside the sucky official markets, now wants Venezuelans to use benjamins within the confines of a banking system they control, at a price set by them.

Who’s going to trust the government that expropriated billion-dollar assets without paying for them? Once the dollars are in Venezuelan banks, what’s stopping the government from pulling an Argentinian Corralito and forcibly exchange the dollars in domestic banks for bolivars at the official rate? Why would any sane person have a balance exceeding zero in a dollar-denominated account in a Venezuelan bank, just waiting to be seized and exchanged for dead bolivars?

Who’s going to trust the government that expropriated billion-dollar assets without paying for them?

Still, I’ll grant them something: Dollar Heaven is a flexibilization of the exchange controls. It obviously falls quite short of the “free convertibility” mantra the government’s been selling, but it sets the stage for a straightforward elimination of exchange controls in the future, although I suspect it won’t be by this government. It would just be a matter of killing the gatekeeper and let bolivars and dollars move freely between the two worlds.

It would be like any other country without exchange controls, where having your money in one currency or the other is just a matter of convenience, and money, whether in dollars, pesos, or euros, is just that: money.

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20 COMMENTS

  1. Just like the Petro is a fake crypto-currency, it sounds like a fake “cloud money platform”. That is, just like the Petro tries to pull the wool over our eyes like this government “gets it” and is hip to the digital economy; they are trying to create a false AirTM. And just like the Petro, nobody will buy into it because it goes through a totally corrupt central bank run by crooks and thieves.

    Dollar Heaven is really Dollar hell and the satanic people in control of this government only know how to deceive…

    Furthermore, the black market is so entrenched. Not only do people have long standing relationships with private money changers, but services like AirTM exist today. The genie is out of the bottle and none of their chimbo santaria inspired tricks can get it back in the bottle.

    Right now all this regime has is marketing. They are trying to give the impression that they are on top of things (mainly so the military is still kept loyal). But anybody with half of a brain knows that none of this will work. Each week some new bullshit scheme comes up and ultimately flops. Lets see what happens when the 90 days of Maduros paquetazo is up and how the economy is in complete shambles and this discourse of some bogus economic war starts to wear thin. Right now, they are only buying themselves time and trying to dominate the news cycle.

  2. You explained that in understandable terms. Thank you.

    All those enchufados who are piling up their money overseas are tired of living a lie.

    Just kidding.

    • The real purpose:
      “Here’s where this gets really chavista*: the Central Bank reserves the right to buy all dollars that are left unsold in SIMECA when supply exceeds demand. So the bank could just “fail to match” bid orders, discarding private bids for whatever excuse, and then buy the dollars themselves with freshly minted bolivars—and at a price set by them. And no one will know because SIMECA will be a black box.”

      *Socialist confiscation

  3. Nice column, spelling out a big problem with the Govt’s plans to get their hands on remittances.

    Here is another one: A family that recieves remittances will be relatively dollar-abundant, so they get a better deal on the black market.

  4. I don’t understand the vagaries of foreign exchange. I live in a real country that doesn’t have to deal with this nonsense.

    But I do recognize a very well written piece, and this is it. (The facts? I don’t have a clue.)

    Just want to say that it was brilliantly written and translated. Concise, informative, without superfluous bullshit.

    Maybe Quico should take a few months off.

  5. The last official exchange was about 61 version 3.0 Bolivars to the Dollar. Dolartoday is showing 91. Lately they have been behind the curve and I assume that some people are already paying over 100.
    That is the first zero coming back. Just 4 more to go.
    At the Dolartoday rate, the official exchange is a 1/3 discount.
    I don’t think many cash strapped people will give up 1/3 of their purchasing power. The regime will not make the exchange work until people can buy foreign currency at the advertised exchange. Not just sell it.
    Remittances may be the largest source of foreign currency available and the regime will try every scam they can to get their thieving paws on it.
    I have advised the people that I help in Venezuela to try to buy any Dollars they are able to with the new “wealth” they will be experiencing when they new pay is distributed. The purchasing power of the 30 X wage increase will be very short lived.

  6. I wonder how easy it is to withdraw dollars if you put your remittances into a dollar account in a local bank. If dollars can go in but only bolivars can come out it’s not going to work.

  7. Ok, let’s say I fly down to Caracas from Boston with my Bank of Boston credit/debit card. Will my card work in a Caracas ATM machine? Will I be able to withdraw dollars from my Boston account through said machine? Or only Bolivars at the SIMECA exchange rate?

    And once the ATM/Central Bank has my Boston account ID, what is to keep a good little clerk at said bank from sucking it dry?

    • Don’t know if ATMs will dispense dollars. The Exchange Agreement allows deposits/withdrawals of dollars in cash, but don’t know if they’ll provide that service for non-clients (by, for example, charging your card for the cash at the till). I wouldn’t bet on it, since it’s not something that they do today for bolivars. Doubt they’ll start doing it with dollars. I guess both things are allowed under the agreement (ATM and at the till), just doubt it’ll happen.

    • as it worked before the atm/pos would take your money and convert to bolivares at the current exchange rate. It wouldn’t spew dollars to you or the store owner. I’m guessing now the rate will be based on what the government currently considers the exchange rate, but in practice, who knows?

  8. none of this is gonna fly. everyone knows that dealing with the government is like knocking on hells door and seeing which demon flies into your life.

  9. Nobody talks about the costs associated with a dollar denominated account at a Venezuelan bank.
    First the foreign bank has fees for the electronic transfer.
    The local bank has fees if you try and retransfer the funds to another foreign account – US$25 at Banco Provincial the last time I tried to transfer out an AdSense payment.
    By the time you add all this up and compare it with the $3 or $4 PayPal charges per transaction and the lower rates it’s just not economically feasible to deal locally.
    This system will crash and burn along with all the other schemes they’ve had over the years.

  10. Thanks, Alberto Fernández,
    I liked rereading your story even more.
    You so politely write about
    the lipstick on the pig,
    really makes me so… envious. 🙂

  11. The same government that spent 15 years driving away dollars and persecuting those that traded in them outside the sucky official markets, now wants Venezuelans to use benjamins within the confines of a banking system they control, at a price set by them.
    —–
    Lucid article. Well done. Per the above … Anytime you hear anything about money, for which the Chavistas have control, you know its a scam as certain as day follows night. It’s a little like leaving a hot dog around a cocino. The porker simply can’t help but to help himself. There’s always a “black box’ with all things Chavista, which allows them to game whatever system is currently in play. But I’m not seeing this one – at all.

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