Wikinvest Wire

Quote of the day, Venezuela edition

Tuesday, January 12, 2010

It's hard to keep track of the goings-on in Argentina and Venezuela these days, what with central bank chiefs being fired for not allowing foreign exchange reserves to be used to service debt in the former and after radical currency devaluations in the latter cause panic in the streets as citizens rush to spend their money while it's still worth something.

The most memorable quote of the day so far comes from this WSJ story in which a harried Venezuelan shopper stops long enough to talk to a reporter:

At Caracas's middle-class Sambil shopping mall, lines at cashiers reached 50-deep. Carmen Blanco, a 28-year-old accountant, waited to buy a 42-inch flat-screen television she doesn't need because she already has one at home.

"It doesn't make any sense to keep my savings," Ms. Blanco said Saturday. "I'd love to see how things work in a normal country."
Relative to the U.S. Dollar, President Chavez slashed the value of the local currency in half last week, however, in order to protect the buying power of the poor, for essential items such as food and medicine, only a modest devaluation was implemented.

Of course, black market exchange rates remain much different than the government's exchange rates, always a nagging problem for "command economies" such as North Korea and Venezuela. According to the report, black market exchange rates have the bolivar worth about a third less than the new "official" exchange rate and about two-thirds less than the exchange rate for essentials.

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Anonymous said...

Are there middle class accountants that can buy HDTVs in North Korea?

Tim said...

Probably not, but they have the same currency troubles, black market, etc. and have taken similar steps to devalue the local currency recently.

Adam said...

Economically, devaluing the currency is a good thing for Venezuela in the long term. It helps spur domestic investment and production that is needed.

And the official peg is now closer to the black market one. Making the black market less profitable.

Almost the whole 2nd/3rd world pegs its local currency to the dollar.

Adam said...

That was me as Anon too above. Not to confuse anyone reading.

getyourselfconnected said...

When can we devalue to enjoy all these benefits?

Chuck Ponzi said...


Um, beg to differ. Devaluation creates certainty about what will be done to holders of the currency... they will be chopped in half.

What foreign investors would want to hold in that type of environment?


Anonymous said...

Devaluation robs consumers of their purchasing power. It is a cruel regressive tax that devastates the bottom half of the population.

Pretending that they didn't devalue money uses to buy food/medicine is just a lie. The poor are now in desperate straits, and their retirees will have to live on dog food. If they can even afford that.

Adam said...

Pegging your currency at a too low of a level also creates problems too. Such as excessive imports, lack of exports and higher government debt.

If you get past the hype you will see facts such as Fitch upgrading Venezuelan debt from BB- to B+. And Moody's said the devaluation is "neutral to mildly positive" for the country's sovereign credit rating.

Also, Roubini upgraded Venezuelan growth forecasts from negative growth to positive for 2010.

Most economists also say that Venezuelan already high inflation will only be 5% higher than what it would have been without it.

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