ADSactly World - Venezuela’s Looting Through the Currency Exchange Control

in world •  last year 

Introduction


Every person who keeps him or herself informed, is aware that for the past few years the situation in Venezuela has been getting worse and worse, the large number of people who are leaving the country has become a regional issue, stories about people dying because there aren’t medicines are told over and over again, as if they were the same story being repeated several times, except that they are not, and crazy facts about the average salary that people earn in here can sometimes sound unbelievable.

As with any complex problem, there are several factors that together can cause a historic crisis such as this one, which by the way, is the worst economic and political crisis in Venezuela’s history. However, one particular factor might be a little bit harder to understand for people who have never lived through a currency exchange control.


As a personal anecdote, I remember speaking with a Spanish couple a few years ago, and we were talking about Venezuela, eventually the topic was about Venezuela’s economy and people’s money, when I told them how much the minimum salary in Venezuela was, they were impressed because it sounded like a lot of money, and when I told them that the real value of those Bolivares (Venezuela’s currency) was much lower, it was difficult for them to comprehend how could this be. Eventually I managed to explain to them why the official numbers don’t work when it comes to calculating the money people can earn in the country, in short words, when converting the local currency we need to use the black market rate, not the official rate.

However, more than explaining the economic impact a currency exchange control has for the people, I want to explain how a system such as this one can be used to enrich those in power through the loot of the country.


Briefly explaining the currency exchange control


In Venezuela, the mechanism for the allocation of external currencies has changed over the years, what hasn’t changed is the fact there is not a free market where people can freely exchange currencies like in other normal countries, therefore, for the past 15 or so years, there has always been a system of control.

This system is, of course, controlled by the government, and what it basically allows is for some bureaucrats to choose which companies or individuals are going to have access to the external currencies at the official price, meaning the extremely cheap price.


Something like this might sound crazy, and indeed it is, but it was an economic measure supported by the people because, according to the government, this would stop the “evil” businessmen, from taking their money out of the country, and inexplicably, apparently the voters thought this was a good idea. So the currency exchange control came into place.

In the beginning, it wasn’t all that strict, the people had access to thousands of dollars on a yearly basis for their personal consumption, and companies were receiving the funds they needed to keep their operations alive. But little by little, and year after year, having access to external currencies with the official prices was getting tougher, the people’s personal allocation was now in the hundreds instead of thousands, and companies were unable to exchange the amount of money they needed for their imports. Eventually, it got to a point where only people with contacts inside the government were the ones having access to external currencies with the official price.


How did the corrupted government and its cronies got rich?


As we know, just because something is illegal it doesn’t mean the demand will disappear, common examples are the alcohol prohibition, that ended up creating mafias and a black market for it, and in today’s era, the drug prohibition does the same, drugs might be illegal but that doesn’t mean people are going to stop buying them, and if there is a demand, it is just a matter of time for there to be a supply.

Therefore, the same happened in Venezuela with external currencies, freely exchanging them is illegal, but since the mechanism of control doesn’t satisfy the demand, people go to the black market and exchange their currencies at that rate, which is obviously much higher than the official rate.

Here is where the “trick” comes in, what sane people would willingly exchange their stable dollars for a currency with the highest inflation on the planet? No one in their right mind would do a trade like this. No one except one type of person, those who control the currency exchange control allocation.

What they do is assign a certain part of the available external currencies to themselves at the official prices, and then they have 2 options:


  1. Import any product and sell it in the country pricing said products using the black market rate.
  2. Directly selling their dollars at the black market rate through the use of “proxy people” to anyone interested in buying them, and in Venezuela pretty much everyone is always looking to buy stable currencies.

And then repeat the cycle: assign “cheap” currency to themselves – importing or directly selling the currency at the black market rate – assign themselves the “cheap” currency again, and again, and again...

Those are basically the 2 methods they used, selling the value assigned at the black market rate, and then using the money they received with said sale, to assign themselves “cheap” currencies again, only this time, they have something like 10 times more money than before, although this will depend on the difference between the black market rate and the official rate, which is why the allocation to people outside of the government started to dry off with time, eventually the people in control had enough money to acquire it all.

This is how we sometimes find news about Venezuela’s politicians having hundreds of millions of dollars in places like Andorra, and rumors about Chavez’s oldest daughter having billions of dollars. They used the currency exchange control mechanism to illegally enrich themselves with amounts of money that are so high, that it can even be considered as one of the majors looting in the history of the world. In fact, there is a Venezuela economist that roughly estimates this looting in 467 billions of dollars, you can find his report (in Spanish) here.

There are of course, other mafias unrelated to the currency exchange control that were used by the current politicians to enrich themselves, but again, I have the feeling the one that might be more difficult to understand is this one, given the fact almost no country on Earth has a currency exchange control, so its implications can be mostly unknown.


Conclusion


In this post, I wanted to explain in the most simple possible way, how a currency exchange control works and how it can be used to enrich the people in power, and I hope at least one person was able to learn something while reading this article.

I also find this issue an important example of what happens when a government takes complete control of the economy, history has proved that it is freedom the circumstance that allows prosperity to exist, so supporting economic freedom instead of government control over the economy comes down to simple common sense.



Images sources

1, 2, 3, 4

Authored by @dedicatedguy

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You can say harder, but clearer not! As always, excellent explanatory post, @dedicatedguy. The cunning of a malandro government and on the other hand, the ingenuity of a gullible people, have turned Venezuela into a broken pocket, an empty wallet. Added to what you are saying very well, is the creation of ghost companies by the government to allocate large amounts of dollars to them. All those dollars went to the accounts of those corrupt politicians, who more shamelessly promote their wealth in an impoverished people. There are the names of many of those Chavista characters on the list of the richest people in the world. People who have never worked or inherited family property are the owners of great fortunes. As the saying goes: they get paid and give themselves change. The only thing left for us Venezuelans is to denounce; to say that even though this group of the population eats, sees, and lives very well; there is another group that goes hungry, that a chicken costs us 10 SBD, that a pair of shoes costs more than 30 SBD. That the majority of Venezuelans only eat two meals a day, that some are anemic and that very few can continue studying. Thank you for always being our voice, @dedicatedguy and @adsactly for giving space for these comments.

It is always nice reading your comments Nancy!

It has always been very bad situation when government control the "currency flow" in a country. That of Venezuela is not far fetched from the Nigerian scenario. When they control this things they make it available at the black markets who they also provide securities for in other to sell it in a secured environment while the citizens continue to languish in abject poverty. It is pitiable that this same situation is happening in Venezuela and some other African countries.

Currently in Nigerian its not the same price you buy dollars you sell it, reason being that at the bank its not available for buy but you can see them a very expensive prices at the black market. The government are our problems, polices that only favour them are what they implement they ones that doesn't favour them becomes mere window dressing.

The poor continue to get poorer, while the rich are getting richer.

I want to believe that someday the right people will come into power and do the right things.

@dedicatedguy thanks for reviewing

The government are our problems

I agree, good thing blockchain technology is offering us new opportunities.

Thanks for your kind words.

Great post. Actually it is not only in Venezuela where their economy situation is worse. There are still many countries out there like there. Actually I never believe Venezuela economy situation is that so bad or worse I should say. I always see that as one of the countries who are like enjoying with peace of no war and that their economy situation is better. But thank God for reading this post today. The government should try doing something about it before there is no citizens left in that country. Because what pursued citizens out of their country most at timed is when there is economy hardship in the country. I hope for a turn around for them

Actually I never believe Venezuela economy situation is that so bad or worse I should say

Well you can believe it my friend, Venezuela is going through the worst crisis in its history.

@adsactly sir!
Your analysis is absolutely accurate. Like Venezuela, there are many other countries which are also going through economic slowdown. It is possible to control the exchange of money and use it to enrich power only when the economy is supported by economic freedom instead of government control.

Those guys at the seat of government have decisively refuse to put more effort to curtail the problem thereby reducing the number of migrants from Venezuela and increasing economic activities. We pray that things will soon stabilize in that country.

This is terrible so bad. Like I said earlier on, the feature of a country lies in the hands of the citizens. In the case of Venezuela right now, the citizens are to be blamed for acting without thinking, without the use of knowledge. Most times we only look through the sweet aspects of life and forgetting that all advantages has disadvantages.
It's obviously a lesson to be learned by allowing the government take full control over the economy.

O no. Sorry for Venezuela. I pity for them. You know when there is economy hardship and political crisis in a country. The citizens begin to flee and run away from the county. If the exchange currency control will help them.I will advise them fo implore it. Better days ahead for them

O no. Sorry for Venezuela. I pity for them. You know when there is economy hardship and political crisis in a country. The citizens begin to flee and run away from the county. If the exchange currency control will help them.I will advise them fo implore it. Better days ahead for them

Hang them all! Fuck the governments and the banks!...

Hii adsactly
Always your blogs are awesome 👌
But it is to late for me to read your blog
Here in "INDIA"🇮🇳 it's 1:30am.
Sorry bro🙏 I am going to sleep
Tomorrow I will read your blog and comment on if ...
😅🤝😴

  ·  last year Reveal Comment

Really accurate and perfect description of what is happening with Venezuela's economic situation. Thank for informing, thank you for letting people know we are suffering the most horrible economic crisis ever.

Actualmente el sueldo mínimo está en 1.800 BsS (Bolívares Soberanos), menos de 20 dólares, 9 SBD actualmente son aproximadamente 1.800 BsS., pero para lograr reunir 9 SBD nos cuesta mucho porque los que tienen suficiente Steem Power que viven en Estados Unidos y Europa no curan ni votan nuestros Post.
También les informo que un sueldo mínimo de 1.800 BsS no alcanza ni para una sola persona, ya el kilogramo de carne de Res está pasando de 500 BsS.
Si desean tener una idea de los precios pueden ver el post denominado VENEZUELA AMANECE SOBERANA PERO CERRANDO EL DÍA TEMBLANDO, aclarando que son precios viejos ya que en Venezuela los precios cambian todas las semanas.