The fictional dollar gets a little bit less fictional

Monopoly Money
Still fake

And so it’s official: the bolivar has been devalued to Bs.6.30:$1, with the never-well-pondered SITME mechanism abolished.

On paper, a 46.5% 31.7%* devaluation should be huge news. The reality is that after years of accumulating overvaluation, Bs.6.30 is still light years from a realistic value for the a US dollar. Importers’ access to dollars may improve somewhat on the margin, but no more than that.

It will do somewhat more to ease the central government’s finances by turning the same number of petrodollars into more bolivars the government can spend. Inevitably, it will also fuel higher inflation.

When the smoke clears and the mirrors are packed away, we’ll be left with a more cash-flush government, a less cash-flush populace, and with all of the pre-existing distortions and absurdities somewhat attenuated, but very much in place.

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A journalist, political commentator and news obsessive, Francisco Toro is the Founder and Executive Editor of Caracas Chronicles.


  1. And so SITME joins Tamagochis and TropiBurger as references that immediately date you as having lived through a certain period. I’m just glad I will never, ever again have to explain SITME to a foreign client/editor – the mechanism was so convoluted and bizarre it was virtually impossible to make sense of. One for the economic historians of the future to kick around…

    • It won’t cause a 47% spike in inflation, simply because so few products were coming in at 4.30 to begin with.

      It should have some impact, though, especially on those goods that WERE getting cheap dollars, which are indeed the most politically sensitive goods – food, medicine and government procurement goods.

      • The mere announcement of the elimination of SITME caused a large spike in the black market dollar price (check it yourself over the many web pages that “ilegally” show this number), so inflation will be larger than you might originally think.

    • Well, consider that imports are priced in dollars, but consumers are paid in Bs.F. Since imports (barring those with “fixed” prices) are typically paid for in their exhange rate equivalent to dollars, there’s an expected spike of 47% inflation in the near term.

      Of course, it doesn’t work out exactly like that and this is assuming the market automatically adjusts, which it won’t in its entirety, but a realistic expectation over the next couple of months is a 25% or so ding. Lag effect, governmental interference/distortions, market flows, etc. will take time to unwind. But what’s another 25% when you are annualizing at 40% or so over the last three months?

  2. Technical note: the *dollar* appreciated 46.5 %. The *bolivar* depreciated 31.7%.

    To see that this is so notice that, were the new exchange rate to be Bs.8.60:$1, the depreciation would be 100% in your opinion, which is clearly not so. Something that depreciates 100% is worthless. What is correct in this example is that the dollar appreciated 100% relative to the bolivar, and the bolivar depreciated 50% relative to the dollar.

    The right calculation for the rate of depreciation of the bolivar relative to the dollar is


    That is, 31.7%

      • Most venezuelan economists make a distinction between deppreciation, which is reffered to the real value of a currency, and devaluation which is strictly reffered to the exchange rate…

    • Thankyou Alberto. As a non-economist, I find it baffling that even professional economists in Venezuela (well, the whole of Latin America, actually) fall into this trap all the time. They often look completely blank when one tries to explain that a ‘120% devaluation’, for instance, is an impossibility, since nothing (except perhaps Nicolas Maduro?) can have a value of less than nothing. Unless you’re talklng pure mathematics of course.

      • For example, even Barclays Capital is calling it a 46.5% devaluation. Why is it so hard for them to grasp that that is completely misleading?

  3. The real question now is what this is indicative of? Does this mean that He-Who-Shall-Not-Be-Named is returning in the near future and passing odium on to the flunkies? Or is the government out of time and with the boss’s passing in the immediate future, they are trying to salvage what they can before elections, since, if elections are in the short term, they can run before the inflation really hits.

    Alternately, anyone ever seen “Moon Over Parador”? How about that for a scenario

    • But, …but,…a secondary announcement from the government was just released whereby Bolivarian 4F baseball caps have been ‘reduced’ in price, thus equalizing out any inflationary pressures. See ya got ‘dropping’ baseball caps over here, and ‘increasing’ drug costs over there, putting everything in a kind of balance, and…oh, never mind.

    • No need for truculent scenarios.
      Chavismo will win even if the country is shattered by inflation, mongooses, Cubans, Fidel, the Maya calendar and so on…
      And the Oscar goes to He-Who-Shall-Not-Be-Named creator! I didn’t hear a funny epithet for him since the Shah of Sabaneta occurrence.

  4. Rumors running rife today —now known as Red Friday in keeping in line with Venezuela’s long tradition of mocking anything and everything to do with politics— on raising gasoline prices Real Soon Now™

  5. Now the chavista appropriation of the tricolor baseball cap makes better sense. All that childish hoopla was another obfuscating move, ahead of a pending (economic) announcement that needed camouflage, especially after the oppo got tarred and feathered, during the campaign, for any future price hikes.

  6. Exact same take I had …. in any other place a 50% devaluation would be HUGE. Today’s it’s almost anti-climatic as it would have to be between 300% and 400% to make a real difference.

    There are some sectors that will see impacts … think beer, pasta, corn and wheat flour, oil.

    Also what about tthe price of Gas now that most of it is imported ?

    • Naahh, it is called “Best Practice”… weren’t you told already? Los importadores enchufados (i.e. the Government and their friends and family) must be in a very festive mood, maybe that is why they lifted the “Ley Seca” for the carnivals.

  7. “Inflación de enero 3,3%, mas del doble de enero 2012 (1,5%). Indicador de escasez 20,4% y diversidad 90,5. Peores niveles históricos.” Meanwhile in the AN…

  8. Well, Feb 18 is the 30th anniversary of Luis Herrera’s devaluation of the Bolivar ( then also at 4,30, although the old Bolivar was worth 1000 Chavez Bolivares). You’ve come a long way, Venezuela…

    • The disadvantages of a carnaval weekend: There’s no time to adjust government publications (Publicado el 03/02/2013) to reflect strategic announcements.

      • Remember Winston Smith in Orwell’s ‘1984’? His entire job was to replace inconvenient news items from old papers with versions that matched the current spin. Eastasia has always been our strategic ally, we’ve never been to war. No one ever said a devaluation wasn’t necessary, you must have misunderstood.

  9. Meanwhile in the real world:

    Venny/PDVSA bond investors:1
    Venezuelan pseudo-economists/political analysts/broken clocks: 0

    • Venny : This might be great news for international bond investors ( if at all) but very bad news for ordinary Venezuelans who depend on the accesability and price of the dollar for much of what they need to import and consume . The regime has made clear that its closing Sitme and announced that it will not be issuing any more bonds because they’ve become too expensive and such bonds had ‘already accomplished their purpose’. Meantime to the question of what are people or companies who cant avail themselves of CADIVI dollars to do the answwer was ‘they will have to fend off for themselves’, this in a country where dollar transactions are criminalized .!!

      • These are good news indeed Bill. I don’t disagree at all with any of what you say regarding the consequences on the population though. However, as Pitiyanqui very well explained before in one of his posts, the expected returns of the equity holders (Venezuelans) is so low that they don’t even care. See, what should happen in a rational society where people care about their savings should be a massive protest and riots against the Govt. However, I am very sure this won’t happen, news and headlines about how bad the devaluation was will come and go and in the end, the people will just carry on with their lives like they’ve always done in the past few years because a) they don’t care about savings and/or b) they don’t have any savings to begin with.

        • Vinny : This means that people earning sometimes barely enough to meet their needs will see their real income reduced by some 40 odd % , it means having to do without things you or your famity needs , it means more hardship in trying to make ends meet , it means more than just a loss of savings ( for those who however modestly have them) it means a much harsher life , I dont know about the protests, but its not going to make the regime any popular , Weve been through devaluations before and they do erode a regimes basis of support coming on top of other problems which are bound to rise in consequence , companies that cannot now have any legitimate access to dollars will go broke or reduce their production which affects the access to popular stapples . I regret to see that your ivory tower purely financial international view of things misses a lot of the implications that these measures have ‘on the ground’ . Also in the past devaluations came as a result of big drops in the price of oil , now they come when oil prices were never higher underscoring the blunders and mismanagement that made it happen Leading this fracas is not teflon snake charmer Chavez but an.untalented mediochre understudy . mr Maduro . The political damage this kind of measure makes often doesnt show up iin full force inmediately , it just accummulates and grows and festers until at a future moment of crisis it just blows up !! time will tell. This kinb of devaluation is not happening anywhere else in LA despite other fellow countries not being blessed with the oil wealth our country has.

          • Bill, I fully understand the implications of this measure. I am Venezuelan and lived there pretty much all my life until a few years ago, so believe me I know the “on the ground” feeling. I also know that nothing has happened after the last 7 devaluations, quite a big number if you ask me. I don´t see that much erosion after 14 years and 7 devaluations, of course they´ve lost support, but they still count with a 1.5 million margin of safety in terms of voters, another big number. Companies will go broke? Yeah, some might but the Venezuelan economy is an upside down economy. An artifical economy where productivity matters less and less as time goes by and the only engine behind it is the Govt. In a way, that has always been the case in Venezuela, the only difference now is that the reliance on state expenditure has increased when compared to say 20 years ago.

            Good point on the devaluation with high oil prices. It is a proof that the mismanagement
            of resources has been tremendous under Chavez. no doubt about that.

          • Popular opinions are as you know are very fickle , sometimes they turn on a dime , it doesnt always show inmmediately but ultimately they can be game changers , Chavez benefited from the 4th republic devaluations albeit belatedly , Now this devaluation strikes people when they are more vulnerable .Remember how a week before the East German Regime crumbled a million strong paraded before the Supreme Leaders celebrating the birthday of the Communist Regime. The odds are now a bit less favourable for the regime than they used to be . A few more blunders , some deepening of existing problems and who knows what can happen , Maduro is really a lame lackluster public leader no matter how big he squeals . Still you are abroad leading what im sure is very comfortable life , using your sharp wits to make a lot of money with the splendid profit to be made from unappreciated Ven govt bonds . Ours is unfortunately a different lot , Glad anyway someone at least is doing the big financial world !!

          • The political damage is offset by the lack of any alternative source of income. The handouts and missions however meager and unstable are for many their only life support.

  10. «No importa que andemos desnudos, no importa que no tengamos ni para comer, aqui se trata de salvar a la revolución» Hugo Chávez.

  11. Huh? So partial devaluation is no good, then what would be good, a real shock, to really screw those at the bottom quickly and efficiently? Of course political and electoral considerations shouldn’t be put before “best practices”, but macroeconomic considerations should also not be in put before every single citizen’s right to a decent living… it’s easy to recommend or implement “shock therapy” when it will not affect you. So, please! Prove me wrong. Tell me that the opposition, opposition-minded Venezuelans, the (old) wealthy, and dudes like Cisneros, have made credible efforts to help poorer Venezuelans, despite not having the government’s power or checkbook. By the way, such things would also have gone a long way towards healing the SOCIAL rift in Venezuela, which will never be resolved no matter how good the economic policy is. And I do remember this blog made an inspiring and commendable, (although electoralized in some way?) effort to help out those folks you asked for donations for last year, to buy supplies and help maintain the assistance program, can’t remember if it was education or health related. So what I mean, is, are there dozens or hundreds of other similar, private, opposition-minded efforts? Am I way off base? Please enlighten me, but now with macroeconomic theory, nobody can eat that and even if it will create better conditions in the future, “the left’s” basic advantage over “the right” has always been, that they appear to give a shit about that.

    • Blah blah la cuarta blah blah Cisneros blah blah el imperio.

      You just woke up from a 14 year coma and came to comment the news or are you another maroon that conveniently decides to ignore that Chávez has been in complete control of the country with a nice oil bonanza.

    • You’re 16 right?

      Listen, when you spend 14 years making one serious economic policy mistake after another, there isn’t any “good” way out of the hole you’ve dug for yourself. This decision sucks, just like a more aggressive decision to devalue further or float would suck, (though in a different way) because by the time you’ve layered one insane policy over another over another for 14 years in a kind of Lasagna of economic distortions, you find yourself choosing between terrible options and even more terrible options.

      But why wouldn’t we be confident? After all, the guy who baked the shit lasagna is the same guy now called in to unbake it. What could possibly go wrong?

      (seriously, please tell me you’re 16…)

  12. Confucius:: Venezuela is between two hard places,Full scale devaluation might prove economically more effective but places a intolerable burden on ordinary venezuelans who are so dependent on dollar imports , Partial devaluations are clearly insufficient ( dragging the problem for a longer period) but does lessen its inmediate impact on the general population , both options have down sides . ,Politically governments will take the economic decisions that they believe will impact their popularity less adversely. What a responsible rather than populist government might do is to follow economic policies which render painful devaluations unnecessary , this as your know is not a responsible government. The notion that social malfunction and poverty in the scale which exists in Venezuela is something which can be tackled mostly through private initiative is not very realistic , it takes the huge resources of a very well managed responsible government acting methodically for a very long time for anything substantial to be achieved , even then some luck is needed to help the process along. Market economies appear to be generally more succesful in reducing or even erradicating poverty , but you need the ruling political elites be they right or left wing to develop competent honest organizations and to have a fixed responsible realistic plan to reach the target .whatever the short term electoral temptations . . .

  13. You all realize now that GASOLINE is 31.7% to 46.5% cheaper now than yesterday? LOL
    :) How many more devaluations to we have to go through before that issue is addressed? soon enough they will have to pay us to fill up the tanks!

  14. We kicked it around the office quite a bit today about the devaluation. It was a tad below our original estimate of 7.0±.5, but still sufficient to bode ill. I remember reading a paper on this topic as to why governments avoid a full devaluation when logically they shouldn’t….

    Curious how Venezuela lands smack in the time-inconsistent band and hence the defense/devaluation mechanism. I still think they are defending given the incremental devaluation when it should be devalued 85% or so to be realistic and cover at least an additional year or so of price pressures.

  15. This one was more cabilla than the Viernes Negro one and it isn’t even as high as it was supposed to be. Now, seeing they realised nothing happened as they basically made everything considerably more expensive than before in a night, will they be brave enough to end subsidy on gasoline?

  16. The government is now on damage control mode saying that the devaluation is for stabilizing the economy, you know, just like they did last time.

    • True, but the government is the only game in town! Without THIS government, what alternative is there for their life support? Now, if they know I voted oppo, they might take away what little I have, put the oppo in jail, divert all the food imports to mission mercal, and leave the oligarchy to starve. Then what?

    • What a great link! So satisfying to read their comments, the slow realization dawning on them that Chavista leaders lied to them as much if not more than the 4th Republic. From the reaction I’ve seen from Chavistas so far, I think this devaluation has been much more damaging than any previous one to the “revolutionary” movement.

    • Ellos piensan que van a tener aumento general de sueldos en Mayo… bueno… a comer yuca papa, porque el gobierno lo que esta es enyucando a la gente.

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