BCV’s FX System: Fumando una Lumpia

With apologies to righteous stoners everywhere

It’s a bit mindboggling to see such insane stupidity up close and in action.

The Central Bank’s new band system made its debut with lower/upper bands of BsF. 4.2-5.4 per dollar.

Brokerage companies are history, but banks will be allowed to sell $40 million per day, collectively.

Individuals will be allowed to buy a maximum of $5,000 per year, and companies will be limited to $300,000 per month, or $3.6 million per year.

Now consider that it takes between $60 million and $80 million per day, or roughly $15 billion to $20 billion per year, to ensure that Venezuela’s economy runs more or less smoothly.

Keep in mind also that Venezuela has imported more of everything since Chavez has been in power (see BCV’s data series), and simultaneously producing less locally.

Venezuela is immensely dependent on imports, especially for its food supply and medicines. Businessmen we know say that depending on the category of product, the country’s import dependency ranges from over 50% to over 80%. That much dependency costs beaucoup dollars. But the revolution has been running low on cash lately because Pdvsa’s production capacity has collapsed, and the regime’s policies have laid waste to the non-oil economy.

Venezuela now has three official FX rates – 2.60, 4.30 and 4.2/5.4 at BCV’s FX window. However, a fourth black market FX rate already operates at places like Simon Bolivar international airport in Maiquetia.

Cadivi is still chugging along, and some dollars are flowing from the Bolivarian FX pipeline. But it’s not enough.

The old “permuta” market was financing between 30% and 40% of Venezuela’s imports needs. But that market is kaput, and the new BCV FX window imposes very tight quotas on individuals and companies.

What’s next?

*It’s unsustainable. In a few weeks or months, the BCV’s FX window will go bust.

*The available supply of hard FX will be very restricted, and the black market FX rate will climb. It’s inevitable, like gravity.

*Shortages of everything will increase. Think it’s bad now when out shopping for groceries in Caracas or the interior? It’s going to get worse very quickly.

*More scarcity of everything = higher inflation. Don’t be surprised if inflation climbs to 45-50% in 2010. Keep an eye particularly on food prices, and on inflation in the lowest socioeconomic segments of the population. Poor Venezuelans will be hammered ferociously.

*Based on what we’re all seeing daily, the Chavez regime probably will respond to Venezuela’s expanding crisis with more expropriations, class warfare rhetoric/actions, intimidation, threats of violence, arbitrary arrests, illegal decrees and legislation, etc. ahead of the September 26 legislative elections.

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About Caracas Gringo

Representing less than 0.00000000001515152% of the world population as of 31 December 2011.
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4 Responses to BCV’s FX System: Fumando una Lumpia

  1. sapitosetty says:

    I’m disappointed that today you’re the one who thinks this is all just stupidity and I’m the one thinking it’s a subsidy to narcotraffickers and other money-launderers.

    CG reply: LOL. Good point.

    Like

  2. m_astera says:

    Those in private business will have to go to the black market for dollars in order to stay in business. As that is illegal, it will make any private businessman a criminal if they can’t account for the source of their dollars through official channels. So, they are running a criminal enterprise and that can be the excuse for them to be shut down or expropriated.

    Like

  3. dianuevo says:

    There is however a little trick to make some money out of the new system. Every Venezuelan with an offshore account with a bank that is acknowledged by the BCV can use this account to receive $5.000,00 at an exchange rate of BsF 5.4. Once received one can easily sell their dollars on the black market at an exchange rate of BsF 9.7.

    Like

  4. Roberto N says:

    That’s if you can even get the $$ through the new system.

    A fellow reader, Roy, reports in another blog how his bank branch manager has not yet been able to get one person or company any dollars through the new system. Add to that that there are apparently some hidden fees and other “caimanes” that push the cost of a dollar north of BSF 8!

    Que de pinga!

    Like

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