Venezuela Launches First Nuke In Currency Wars, Devalues Currency By 46%

Tyler Durden's picture

While the rest of the developed world is scrambling here and there, politely prodding its central bankers to destroy their relative currencies, all the while naming said devaluation assorted names, "quantitative easing" being the most popular, here comes Venezuela and shows the banana republics of the developed world what lobbing a nuclear bomb into a currency war knife fight looks like:


And that, ladies and gents of Caracas, is how you just lost 46% of your purchasing power, unless of course your fiat was in gold and silver, which just jumped by about 46%. And, in case there is confusion, this is in process, and coming soon to every "developed world" banana republic near you.


and just as we (and Kyle Bass) have warned - this is what happens to the nominal price of a stock market as currency wars escalate... how do those US investors who flooded Venezuela with cash feel now? bringing back those VEF gains is going to hurt...

The chart above is a free lesson in nominal vs real: the hardest lesson for some 99.9% of the world's population to grasp. One person who certainly knows how to devalue a currency in real terms FDR, whose 70% devaluation of the USD courtesy of executive order 6102, is merely an appetizer of what is about to be unleashed upon the US.

From Bloomberg:

Venezuela devalued its currency for the fifth time in nine years as ailing President Hugo Chavez seeks to narrow a widening fiscal gap and reduce a shortage of dollars in the economy.


The government will weaken the exchange rate by 32 percent to 6.3 bolivars per dollar, Finance Minister Jorge Giordani told reporters today in Caracas. The government will keep the currency at 4.3 per dollar for some products, he said.


A spending spree that almost tripled the government’s fiscal deficit last year helped Chavez win his third term. Chavez ordered the devaluation from Cuba, where he is recovering from cancer surgery, Giordani said. Venezuela’s fiscal deficit widened to 11 percent of gross domestic product last year from 4 percent in 2011, according to Moody’s Investors Service.


The move can help narrow the budget deficit by increasing the amount of bolivars the government gets from taxes on oil exports. While a weaker currency may fuel annual inflation of 22 percent, it may ease shortages of goods ranging from toilet papers to cars.


In the black market, the bolivar is trading at 18.4 per dollar, according to Lechuga Verde, a website that tracks the rate. Venezuelans use the unregulated credit market because the central bank doesn’t supply enough dollar at the official rates to meet demand.

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disabledvet's picture

Venezuela crude at a 30% discount globally is potentially a big deal. Obviously if it hits a 70% discount "and it still can't break into the US market" and you have a real crisis (hyperinflation) in that country. You want to compare "Apples to apples" in the race to debase...that would be the canadian dollar as "they're the other one that can't sell into the US market" if they have to compete with Chavez. China wouldn't be far behind if Canada goes belly up.

fuu's picture

He's busy arguing that retail owns enough gold to scare Ben into doing something drastic like dropping gold to 1000-1200 to teach them a lesson. Because gold prices are entirely psychology driven.

francis_sawyer's picture

yeah ~ he'd do it just for the lulz [which I'm sure would prompt the Chinese to dump all their tons on the market]...

fuu's picture

It must be one of those counter-intuitive things.

philosophers bone's picture

Fuck All Creditors (until the Fed and gov't force me to become one).

Yen Cross's picture

 So, I have an inverted H/S pattern, (yen crosses), on the M-5 chart for Sumway?

yogibear's picture

Hyperinflation Bernanke and the Fed will annouce one much better.

They will devalue the US dollar by 100%.

And so the US has currency wars with 3rd world nations.



css1971's picture

The GBP is next I reckon.

Yen Cross's picture

 i like your thinking.

Winston Churchill's picture

Care to elucidate on that ?

Yen Cross's picture

Well, I'll take a shot if you don't mind?

css1971's picture

Towering national debt that would almost make Japan proud. Forgot to mention an increasing deficit to go with it.

Trade deficit, just getting worse and worse with north sea oil & gas running out.

Triple dip recession on it's way in.

Shiny new Bank of England governor, a jonny foreigner.

The populace have no fucking clue what money is so have no idea by whom they are being fucked.

It's already in free fall against the EUR & USD and to prevent a recession they really should stop sending 100 billion GBP a year abroad.

Timing's a bitch as always but they can always blame it on the new guy. They're politicians after all. Everything says devalue to me, which would be ironic because the conservatives are in power at the moment. Thank goodness I store most of my value in something else.

Winston Churchill's picture

Mine also,though some of my income, and assets are in pounds.

The Japan situation is actually more appropos than you think.

UK has vast foreign holdings,far more than Japan.Hard to put a figure

on the value added fraud from London as well.

Pound is not on a fixed range or peg,so hard to see a reason for a formal

devaluation.At least their debt  is stated in GAAP terms,unlike the US, whose dollar is

only being propped up by the petro dollar..Not much longer IMO.

Shit,all the fiat is going to be toilet paper ,why are we arguing over the brand of wipe.

Yen Cross's picture

 Are we done Gents?

  perhaps this [chess match] , is better discused over a cup of {High Tea} ?

Winston Churchill's picture

Maybe the Long Island brew ?i

Yen Cross's picture

   You know I like you W/C. Z/H isn't the S&P and Moody's.    

disabledvet's picture

well we can now all say "the petro dollar" is a bunch of bullshit. obviously ANY oil rich nation that doesn't have a huge consumer to back it up is in DEEP doo doo. Tell me...what was the deal with "the Corn Laws" back in the day?

patb's picture

if everyone devalues, then nobody devalues.


if the $, Yen, Euro,Yuan all devalue, it's meaningless.

Yen Cross's picture

100% ponzi.  The first devaluation wins.  Tyler my posts are being chopped.  Fragments are being lost?

  In any case, The race to debase, has certain constraints. When said costs (feeding the serfs) is an outlier, the Serfs ( RIOT)...

Jendrzejczyk's picture

Your fingers aren't translating your thoughts again. NOT TYLER'S FAULT.

LawsofPhysics's picture

not quite.  Everyone will still need to pay more fiat (regardless of flavor).  So everyone who has to actually work for their fiat does indeed lose.  Those close to the free money supply on the other hand benefit tremendously. If interest rates went up proportionally, then people with some savings might not be losing as badly, but it's a ZIRP-a-NIRP world now - "winning".

Yen Cross's picture

     Pain for gain. When ,not if interest rates go up, it won't be demand based.  You kick butt [Laws of physics]

  I wish there were more peeps like you !

css1971's picture

Debts are denominated in currency and the principals will be instantly cut in terms of real values. The most indebted will devalue the most.

disabledvet's picture

this is simple minded bullshit. THERE ARE 300 MILLION REGISTERED CARS IN THE USA! "go all the debt you want." at some point "that thing call an F-150 pick up truck will have value too." believe me i'd love to sell mine for say...$100,000 or so.

css1971's picture

Y'know, if they all start going for it like this to pay off their debts, we're seeing the start of a 40 year move. i.e. For most of us, the rest of our lives.

Clowns on Acid's picture

Well Germany cannot devalue yet...they have not yet received their gold from the Fed.

Chavez brought his gold home , and then devalued.

That is the real race....who repatriates (and physically receives) their gold first.

Dr. No's picture

If only America could get it's gold from the FED....Oh wait, its all leased out...

disabledvet's picture

"my country is bankrupt and now paying the Americans 20% interest but at least we got our gold back!" hoooray! get a clue you dope. Brazil is STILL paying usurious rates of interest from their 80's hyperinflation. Gold can't even come CLOSE to that return.

hooligan2009's picture


not sure how up to date this is but the stock market aint moving (don't think it even qualifies for most EM stock indices)


divide these by 2?

ziggy59's picture

Rules of Currency Wars by Loa C. Tong

He who devalues to 0 first, devalues best.

He who gets his metal away from the shit first, shines it best, first

goldenbuddha454's picture

Hookers 2 for 1 in crackass, venezuela-SWEET!

Northern Lights's picture

Nah, I'm thinking more like 10-1with regards to the hookers.

I wouldn't hit up the hookers though. To many diseases. As a westerner, you could probably go into the village and hit up a few of the local women.

You're giving the locals too much credit by assuming that they are smart and can count. 

Time to go to Venezuala as a sex-tourist.  Get me some of that reverse-gangbang action.


bunnyswanson's picture

No need to go to Venezuala horny tourists.  California has massage parlors on every corner.  Conveniently located between sexy lingerie shops and liquor stores where you can get your contraceptive devices.  Asian girls for the diminitive man - oh yes.  The wife of your neighbor, the daughter of your coworker, the sister of your bride can all be found on Main Street, America.

Cash only.

Ignorance is bliss's picture

Citizens of Venezuela are only allowed to exchange $5000 dollars worth of Bolivars annually at the official exchange rate. Therefore, the Bolivar for Dollar black market is very healthy. Many companies such as PEDEVESA the National Venezuelan oil company supply dollars to the black market for Bolivars so that it can pay its employees at a much lower exchange rate then the official one. In Venezuela the black market rate was 10,000 - 11,000 bolivars for each dollar (last week). I wonder what the new black market rate will be, maybe 15,000 to 20,000 bolivars for a dollar. The devaluation is actually going to be worse then the 46% listed. when Chavez took control of Venezuela almost all of the big businesses were nationalized. The rest closed up shop and re-opened in Columbia, Panama, etc. Almost all foodstuffs and finished goods are imported now. If the black market rate goes from 10,000 to 20,000 then that is a 100% devaluation in real purchasing power for the average citizen.

I have family in Venezuela and  several attempts to kidnap them have been made. Nasty business and very dangerous in Caracas. My brother inlaw told me that a lot of the crime syndicates run out of the prisons. He stated they have become like fortresses protecting the criminals and allowing them to operate unobstructed. Prison guards don't make a livable wage so criminal syndicates have completely taken over. The prisons have become protected bases of operations for the criminals. 

2nd amendment comment. I showed my brother in law my AK and 9mm. He said it was illegal for citizens to own weapons in Venezuela. Only the criminals from the Gov't and from the street have them. He lives behind concrete walls with barbed wire running at the top, and his car has been armored with bullet proof glass and reinforced steel in the doors. My family lives in constant fear, and it wears on them. The bunker mentality is common in Caracas.  I hope we don't see that in America. Its hard to believe that Venezuela was once considered a jewel of the world in the 1950s.



secret_sam's picture

      My brother inlaw told me that a lot of the crime syndicates run out of the prisons. He stated they have become like fortresses protecting the criminals and allowing them to operate unobstructed. Prison guards don't make a livable wage so criminal syndicates have completely taken over. The prisons have become protected bases of operations for the criminals.


I hope we don't see that in America.

Unless we change course pretty dramatically, it's exactly what you should expect.  Government protects our criminal overlords in the USA as well, but for now, it also does a reasonable job of placating the poor with a social safety net.

If the safety net fails, there really won't be much reason for the USian poor to continue to kow-tow to the rich.  Kidnapping is not something folks WANT to do, but if one's only options are watch the family starve or attempt some "high-risk/high-reward" criminal act, the crime becomes a lot more appealing.

Sounds like we're all a lot better armed, which should count for something, one way or another.

Ignorance is bliss's picture

What I find fascinating is that prior to chavez there were no taxes. Gov't income came from the sale of oil. Now Gov't men show up demanding millions of dollars in  taxes or they nationalize your business and your assets. Gov't sponsored extortion.

My wife's family in Venezuela became wealthy and were continually expanding. Now everything is a hedge against inflation and crime. Fraud is rampant. It has become all consuming. They are attempting to start roots in other countries, but its hard when your paradigm shifts so abruptly. They are like the early mariners, rudderless on the open seas hoping for salvation.

They see the dollar and the Euro as a life raft in the ocean. I tell them to run for Gold and Silver. They don't get it. They don't understand the U.S. debt situation. They only know that the dollar has been the reserve currency and they invest accordingly. How much of the world views the Dollar though a similar perspective? Many will be caught unaware when the dollar floats to the top of the lake like all the other currencies.

disabledvet's picture

fishing is my plan. there will be a hyper-inflation in Venezuala soon tho. (days away?) the Statists are running wild in the USA...but eventually you realize "there's a billion acres for the taking." In American LAND AND WATER is the currency...not that worthless dollar...or the gold. Venezuala has a huge coastline...but living on your own lake strikes me as challenge. We have a billion lakes and ponds in the USA too. Why pay for a highway system when you have the Great Lakes or the Mississippi or Chesapeake Bay? Once that unlimited source of free energy is tapped (meaning the sun) i'd argue "it's game over for ALL the ponzi's." a collapsing dollar is WAY down on that list.

machineh's picture

Next in line for devaluation: Argentina. Official rate 5 pesos per USD; informal rate 7.65 pesos per dollar.

Argentina's idiot bitch presidenta idolizes Chávez -- she went to visit him in Cuba.

She'll follow his lead ... he paved the way for her.


ZeroChance's picture

LOL, is Bloomberg suffering from dyslexia?  They're reporting that this is a 32% debasement.

Not that this would be surprising, right?  This is, after all, the mainstream media and nobody seems to know shit about real economics/finance...


ziggy59's picture

Maybe ZH poster Gringo28 works for bloomies?

TN Jed's picture

2/6.3 = 32%  Wrong
2/4.3 = 46%  Correct

MSM is discounting the move by using the post valuation as the denominator.  Classic.

valley chick's picture

was this article updated?  cause the address to the article is reflecting 32 percent.

machineh's picture

USD value of bolivar fell from US$ 0.2325 (1/4.3) to US$ 0.1587 (1/6.3).

That's a 32% drop in USD value.

Rustysilver's picture


Make calculating increase/decrease in percentage as a answer to join the forum.

People don't know the basis number.  Increase from what number?

machineh's picture

'Increase' refers to an indirect forex quote (bolivars per dollar).

In direct terms (what we care about), the bolivar dropped from $0.2325 to $0.1587.

The reference basis is $0.2325, what the bolivar was worth in USD before the devaluation (as in 'down from').

disabledvet's picture

phuck the bolivar. "give us your free oil now." sound about right? i mean if you're in the transportation business "this is mana from heaven."

machineh's picture

A barrel of oil that was 4300 bolivars is now 6300 bolivars ... 46.5% more, thanks to a 32% devaluation of the bolivar.

Confusing? It's the same asymmetry that makes you need a 46.5% gain to recover from a 31.7% loss in stocks.

This is why academics use log changes in market studies: 

LN (4.3/6.3) = -0.382

LN (6.3/4.3) = +0.382

SUM            = zero (equal and symmetrical)



disabledvet's picture

"log the dollar" cuz they're going to need a lot more of them. amazingly Venezuela used to own thousands of gas stations in the US. Great way to launder money and finally compete with Wall Street! Instead "they sold all their gas stations only to go bankrupt anyways." dopes. what happened Chavez? Keynes is disappointed...

shaecker's picture

The currency VEB was effectively trading at the new rate in the cash black market for a long time now.  Banks and credit card transactions took place at the previous more costly "official " rate and as a result most transactions were in cash.