Venezuela’s Currency Has Lost so Much in Value, Not Even Thieves Want It
What’s a dollar’s worth? Clearly a lot in Venezuela.
Since the tremendous collapse in oil prices began late last year, the country has been struggling to make ends meet. This can easily be attributed to the fact that a large share of its economy relies heavily on oil. Specifically, the industry accounts for roughly 50% of government revenue, 25% of its gross domestic product, and 95% of its overall exports. As of 2015, they would need oil prices at $122 per barrel to balance their fiscal accounts, and with both West Texas Intermediate and Brent Crude currently hovering around $46 and $49, it’s no wonder the country continues to experience a severe downturn.
But how bad is it? Well, according to a New York Times piece published Sunday, inflation is so high that not even muggers want your bolívars — Venezuela’s struggling currency.
As a matter of fact, for simplicity, they’d prefer to not even waste their time.
The authors of the piece, William Neuman and Patricia Torres, detail an unsettling yet stark glance into the health of the country’s economy, and how its citizens are faring with the evident instability.
“ When robbers carjacked Pedro Venero, an engineer, earlier this year, he expected they would drive him to his bank to cash his check for a hefty sum in bolívars — the sort of thing that crime-weary Venezuelans have long since gotten used to. But the robbers, armed with rifles and a grenade, and sure that he would have a stash of dollars at home, wanted nothing to do with the bolívars in his bank account.”
“They told me straight up, ‘Don’t worry about that,’ ” Mr. Venero said. “Forget about it.”
Venezuela’s plight is not breaking news; unfortunately, the country has been suffering for quite some time now. But when it’s put into perspective like this, it really stresses the lack of confidence being seen.
As one can imagine, gauging the country’s well-being is no easy feat. Economists literally have to improvise in their efforts on a trial-and-error basis just to obtain a manageable understanding.
Though data on inflation for the country is not readily available — the government stopped publishing it last December when the annual level topped 68% — there have been multiple forecasts on where prices stand.
Whether using the International Monetary Fund’s end-of-year projection (159%) or The Johns Hopkins-Cato Troubled Currencies Project’s current implied annual rate (671%), neither are going to have a pleasant numerical outcome.
What’s really interesting, though, is that as a consumer in Venezuela, it’s almost like an all-around guessing game when it comes to purchases.
According to the article, if you wanted to see a movie, the ticket costs about 380 bolívars. If calculated at the government rate, that’s $60, but if using the black-market rate, it’s a mere 54 cents. Throw a large popcorn and soda in there and you’re looking at an additional $1.15 or $128, depending on how you calculate it.
Even when it comes to earnings, it gets a little complicated. With the minimum wage at about 7,421 bolívars a month, that equates to either a monthly $1,178 or a paltry $10.60. That’s a huge difference, both economically and socially. It’s essentially living a life of sheer uncertainty, not knowing your monetary worth nor how much you can truly afford.
It gets worse. Because the price levels of goods are so opaque, residents take the crisis as an opportunity to quit their jobs, wait in long, grueling lines to buy cheap items in bulk, and then resell them for a profit. They figure they can make around four to five times what they’re currently earning now, which is probably accurate. It’s an effort to turn a negative into a positive, but the end result still isn’t much of a positive. If they have a family, though, it may be their only best option.
Venezuela is far from the only country struggling with a serious currency crisis. The president of Zambia, Edgar Lungu, recently prayed to God to “heal” the country’s feeble kwacha, which is down about 45% against the dollar on a year-to-date level.
When looking at neighboring Latin American countries, they too have seen their domestic currencies tumble in freefall since January. Whether it’s Mexico, Brazil, Columbia or Chile, the reasons will vary, but the majority of damage is due to the drop in commodity prices (e.g., oil, copper, iron, etc.).
As for the United States, well, we could actually use a little inflation; just a tad for good measure.
If we were seeing the levels that some of these other countries are experiencing, or even a fraction for that matter, I think the Federal Reserve would have lifted interest rates yesterday.