Venezuela’s Increasing Dollarization

Courtesy of the Wall Street Journal, a detailed look at Venezuela’s economic crisis:
A 100-bolivar bank note with Venezuelan President Nicolás Maduro’s image and the word ‘devaluated’ adorns a market in Caracas. In February, the government unveiled a currency devaluation.
A 100-bolivar bank note with Venezuelan President Nicolás Maduro’s image and the word ‘devaluated’ adorns a market in Caracas. In February, the government unveiled a currency devaluation.

The seven-bedroom, marble-floored mansion in the wealthy Altamira district lists for 3 million bolivars monthly. But the broker says the owner, who lives abroad, prefers a different rent: 10,000 American dollars.

Venezuelan law prohibits the owner from charging in foreign currency, and in 2009, then-President Hugo Chávez scorned the dollar as “paper without backing.” But as Venezuela’s economy crumbles and its currency plummets amid triple-digit inflation, the country is in effect dollarizing. Coded messages increasingly let buyers know that greenbacks are welcomed.

“In bolivars it’s a sellers’ market,” said real-estate agent Rafael Lobo Guerrero. “But in dollars, it’s a buyers’ market.”


From real estate to cars to even some cheaper goods like health-care products, an increasing number of vendors demand dollars—or its black market equivalent in bolivars, now about 350, several times the official rate. That prices out most Venezuelans, who can’t get greenbacks because of complex currency controls the government uses to prevent capital flight.

Those controls have helped exacerbate class divisions between those who hold only bolivars and those with access to dollars, undermining Mr. Chávez’s so-called Bolivarian Revolution, the social movement embraced by his successor, President Nicolás Maduro,which aims to equitably distribute wealth.

“What can I buy in bolivars? Well, not much,” said Juan Verde, a retired lawyer with 20,000 bolivars ($50) a month pension, saying he recently spent all of his savings to buy groceries. “Things are a little up in the air for me. Much like how they are for many Venezuelans.”

Roberto León, head of Anauco, an independent consumer protection agency, said he has received scores of complaints about store salesmen illegally quoting the prices of appliances to prospective buyers in dollars. “Everything is now being referenced to foreign currency,” Mr. León said. “If we’re going to just go ahead and officially use the dollar, the government should just come out and say it.”

Earlier this month, union officials in the auto sector said the Venezuelan government would soon allow manufacturers like Ford Motor Co., which has been hobbled by its limited access to dollars, to price vehicles in the American currency. Authorities have said little publicly about the auto talks, leaving many wondering how far the government will go in officially recognizing the dollar.

Mr. Maduro this week left little doubt that his administration wouldn’t formally adopt the currency of its ideological rival, blaming the country’s economic problems and currency volatility on unnamed foreign enemies.

“In Venezuela, there has never been, nor will there ever be any dollarization,” he said on state television. “Our currency is and will always proudly be the bolivar.”

Underlining the contradiction, he and other officials sometimes reference the dollar in public discourse.

“While I’m giving you an apartment, I’m also giving you a check for $50,000, the dollars that belong to your children,” the president said recently as he handed the keys of a new state-constructed home to a poor family.

To cover for surging government spending, Venezuela’s central bank has increased the supply of bolivars 15-fold since 2008, when Mr. Chávez’s administration sliced three zeros from the previous currency and created a new currency. Its international reserves, meanwhile, are at a 12-year low of $17.5 billion, slightly above poorer Bolivia.

Some economists warn that losing this ability to print money when necessary would complicate the job of economic stewards by yielding an important measure of control over monetary policy.

Yet, others say South America’s largest exporter of oil—a commodity denominated in dollars—ought to follow the example of Ecuador and Zimbabwe, countries that adopted the dollar to combat high inflation, or Panama, which has used the dollar since its founding over a century ago.

In 1995, Steve H. Hanke, an economics professor at Johns Hopkins University who has advised Argentina, the former Yugoslavia and other governments plagued by currency crises, advised Venezuela’s government to establish a currency board to peg a fully convertible bolivar to the dollar. The government dismissed the proposal.

“Venezuela has never had a sound money system,” he said, lamenting the former government’s decision. “They wouldn’t be in their current position.”

Yugoslavia, which used the local dinar for basic goods like groceries but a stable foreign currency, Germany’s deutsche mark, to value cars and houses, could still be a model for Venezuela, Mr. Hanke said.

Yet, for many people here much of the economy is already effectively dollarized.

American Airlines, among other foreign carriers, has stopped selling tickets in bolivars, leaving their flights out of reach for most Venezuelans.

A sushi chef at a posh Caracas restaurant said seafood supplies have been unreliable because fishermen increasingly sell their catch outside Venezuela, charging in dollars. He said that when available, tuna, whose price the state regulates at 80 bolivars per kilogram, sells for 1,300 bolivars on the black market.

Venezuelan pharmacies are short on prescription medications and such common products as contact lenses. But for dollar holders, one chain, Locatel, offers an online service that ships products directly from its U.S. division.

“Of course this is complete dollarization,” said Francisco Valencia, a kidney transplant recipient who said he had to go abroad and pay dollars to buy a steroid medication he needed for his donated organ. “We have to go to the international market or the black market just to take care of our health.”

This entry was posted on Thursday, May 28th, 2015 at 4:43 am and is filed under Venezuela.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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