The Currency Conundrum In Caracas

Francisco Toro connects Venezuela’s chronic shortages of basic goods to its “deliriously dysfunctional currency exchange control system”:

Unlike a normal country, where you can trade U.S. dollars with local currency at whatever price the market will bear, the Venezuelan bolivar is fixed at 6.30 per dollar, and sold discretionally, only to those the government deems worthy. This worthiness is established on the basis of an enormously cumbersome and corruption-prone administrative process.

The real problem isn’t the red tape, though. The real problem is that 6 bolivars and 30 cents is an insanely low price for a U.S. dollar. Venezuelans will gladly pay 85 bolivars for a dollar, even though doing so is technically a crime punishable by up to 6 years in prison.

Having two prices for the dollar makes figuring out what things cost in Caracas something of a philosophical imponderable.

In another post, Toro explains how far one US dollar can go in the black market:

First, take your crisp new dollar bill to a black market currency dealer and buy yourself Bs.85.

Did you make sure to get travel insurance before you trip? Good. Now go to a doctor and buy yourself Bs.85 worth of medical attention. Any pretext will do. Don’t forget to get a receipt, though: your insurance company back home will reimburse your 85 bolivar claim at the official rate, giving you back $1 for every 6 bolivars and 30 cents you spent. So after one doctor’s visit, your $1 has already turned into $13.50. Not too bad.

But we’re just getting going here. Needless to say your next step is to take your $13.50 right back to the currency tout and buy yourself 1,150 bolivars.

Next, take your 1,150 bolivars to any reputable Caracas jeweller. There, you can get about 5.7 grams of 18-karat gold for that. As it turns out, back stateside those 5.7 grams of gold are worth $182.29. Your Caracas black market dollar dealer will be expecting your call by now: the $182.29 you netted for the gold buys you 15,495 bolivars.

This is fun, isn’t it?