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.