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Venezuela Devalues Bolivar By Another 44% For Some, Still 600% Higher Than Black Market Due To 50% Inflation | Zero Hedge
Less than a year ago, Venezuela shocked the world when it launched the “first nuke” in the ongoing currency wars (which despite having dropped off the front pages, have certainly not ended), by devaluing its currency, the Bolivar from 4.30 to the USD to 6.30, in the process crushing the profits of many companies that operate(d) in the TP-deprived socialist paradise (which as we reported earlier is about to experience food shortages).
Earlier today, Venezuela Oil Minister and Economy Vice President Rafael Ramirez announced on state television that the country just devalued the official Bolivar exchange rate again by another whopping 45%, for some.
Specifically, Venezuelans traveling abroad and airlines will use Sicad FX rate which was last 11.36 bolivars per dollar. Those spared from the most recent devaluation, for now, are students abroad, pensioners, retirees, consular and diplomatic services who will continue using 6.3 bolivars/USD rate. This follows comparable steps taken in late December, when the Bolivar was devalued by the same amount for any non-residents and tourists entering the nation, as the nation unrolled its centrally-planned currency regime in which the Bolivar is offered through a dollar-auction system called Sicad.
The WSJ reported at the time:
Venezuela earlier this year launched a dollar-auction system called Sicad where some importers and tourists could request hard currency at a rate weaker than the official exchange rate of 6.3 bolívares. The government never formally disclosed the exchange rate used in Sicad but local analysts and companies that have participated in the auctions say the rate is close to 12 bolívares per dollar.
Venezuela will increase usage of Sicad in 2014 and will deliver $5 billion into the local economy through the system, according to Mr. Ramirez.
Still, Wall Street analysts widely expect Venezuela to pull off a full-scale devaluation of its currency in the near-term, a move that would help the government shore up a its finances by capturing more in local-currency terms when it converts dollars earned through oil sales.
Indeed, the reason why today’s move is largely meaningless and purely optical, is because there is still an 85% differential between the official rate, and what one can get for a dollar on the black market.Which as the chart below shows is substantially higher, and at last check was 78.38 Bolivars per dollar. Said otherwise, the brand new official exchange rate, which will soon be implemented for everyone, is still 590% higher than the real clearing price of the currency on the black market.
Curious why the currency is crashing so fast? Perhaps ask the 50% (and rising) annual inflation in the socialist paradise.
WSJ chimes in again:
“This new tourist rate is not as compelling as the black market, but it does represent a step in the right direction,” Russ Dallen, a partner at Caracas Capital Markets, said in a note to clients.
“For my colleagues on Wall Street that come down to Venezuela, now supposedly when you use your U.S. credit cards for expenses, you will get billed at this 11.3 rate, not the 6.3 rate,” Mr. Dallen added.
Sadly, for a government seeking to refill its coffers with much needed dollars in order to avoid what soon may be starvation as food distributors don’t have dollars with which to pay their vendors, it will have to be far more generous in what it offers those who have the greenback, instead of continuing to encourage the use of the black market, where the money is simply hoarded by enterprising members of the population.
Oh, and for those confused, the reason why the Caracas stock exchange is the best performing stock market in the world in the past year…
… The answer is simple: follow the gray line showing the true “value” of the Bolivar.
Having just missed out of +500% returns in the Caracas stock market last year, the reality of a hyperinflating world continue to cause chaos in the real world of Venezuela. As Bloomberg reports, the bolivar’s 73% decline against the dollar on the black market in 2013 is fueling contraband and worsening shortages of food and consumer goods in a country with the world’s biggest oil reserves, adding pressure on President Nicolas Maduro’s government to devalue. Smuggling to Colombia has exploded as “professional shoppers” traffic in wheat flour, corn flour and milk leaving more than one in five basic goods out of stock at any given time. Regulated foods are just too cheap to stay on the shelves, “you can’t get anything in the shops here… it is taken to Colombia like a locust plague.”
Venezuelan taxi driver Jose Sotomayor drives four hours through army checkpoints every week from the city of Maracaibo to buy rice in Colombia for his family at 10 times the government-set price back home.
“You can’t get anything in the shops here, I don’t even bother going to them for basics anymore,” Sotomayor, 39, said in a phone interview. “All of our food is taken to Colombia, it’s like a locust plague.”
Sotomayor hasn’t seen rice for sale in the shops of Venezuela’s second-largest city since July, as smugglers snap up the staple for a maximum of 7.2 bolivars ($1.14) per kilogram, just $0.11 at the black market exchange rate.
How hyperinflation works…
The bolivar’s 73 percent decline against the dollar on the black market in 2013 is fueling contraband and worsening shortages of food and consumer goods in a country with the world’s biggest oil reserves, adding pressure on President Nicolas Maduro’s government to devalue…
A weaker bolivar reduces Venezuelans’ purchasing power by making imported goods more expensive.
Under a decade-long system of currency controls, the government provides about 95 percent of dollars in the economy to selected companies and individuals at 6.3 bolivars per dollar. The exchange rate on the illegal black market is about 64 per dollar, giving foreigners and Venezuelans with access to dollars about 10 times more bolivars for their currency.
Which means hordes of prefessional shoppers from neighboring (non-hyperinflating) countries are taking advantage…
Price controls introduced by Maduro’s predecessor Hugo Chavez in 2003 to boost nutrition among the poor have fueled demand for staples such as flour, rice and milk as shoppers snap up products whose prices don’t change amid 56 percent annual inflation, the highest in the world.
Dozens of people take shifts to line up outside supermarkets in Maracaibo, a city of 2.1 million people located 800 kilometers (500 miles) west of the capital, waiting for the next delivery of regulated goods. The new stock is bought up as soon as it hits the shelves, leaving shops barren of products such as meat, grains and toilet paper.
The goods are then loaded onto trucks and taken to Colombia. Many of these professional shoppers are native Guajira Indians dressed in bright floral-print dresses who have double nationality and are exempt from border controls.
More than 300 trucks with everything from rice to car tires made the 130-kilometer drive from Maracaibo to the border through eight army and police checkpoints when a Bloomberg reporter did the journey on Nov. 10. Drivers of cars carrying food pay those staffing the checkpoints anywhere from 20 to 300 bolivars for quick passage, according to Sotomayor.
“Regulated goods are just too cheap to stay on the shelves.”
Nationally, the central bank’s scarcity index was 22.4 percent in October. That reading, the highest since January 2008 and up from 16.1 percent a year earlier, means that more than one in five basic goods were out of stock at any given time.
“It’s an endless caravan,” said Sotomayor. “The price difference is so great, no amount of soldiers can stop it.”
Still, things must be going great because the Caracas Stock Index was up 480% last year – think of the confidence-inspiration and wealth effect!!