Venezuela Devalues Currency By 37% As Maduro Announces 62-Fold Increase In Gasoline Prices

Tyler Durden's picture

Maybe because between the specter of defaulting in under three months, the threat of handing over its gold to Deutsche Bank, or the reality of rampant hyperinflation and a collapsing society, the already crushed population of Venezuela did not have enough things to worry about, moments ago Venezuela's Nicolas Maduro unveiled a double whammy of "shock and awe" when the socialist president not only announced the latest devaluation of the country's official currency, but also presented his countrymen with the first gasoline price increase since 1996.

These moves represent the latest attempt to stem a widening economic crisis, though critics of the socialist leader quickly dismissed the moves as insufficient.

On the devaluation side, the latest measure of desperation will lower the strongest official exchange rate by 37% to 10 bolivars per dollar from 6.3, and streamline the previous three-tiered system into a dual exchange rate mechanism. The weaker of the two rates will be a "free float" based on an existing system that currently sells dollars at around 200 bolivars, Maduro said.

As Reuters reports, critics immediately questioned the latter claim, noting that the government has repeatedly announced "free-floating" systems that withered away precisely because authorities never allowed them to be determined by demand.

Meanwhile, Venezuela's true "free floating", market-clearing currency, the black-market "dolar today" recently plunged to over 1,000 per dollar, and was at 1,045.90 as of today. It is this currency that Maduro has sought to eliminate by actually suing the website that reports what it is on a daily basis.

 

That was the largely irrelevant awe, especially since virtually nobody transacts at the official exchange rate which is over 100 times stronger than Venezuela's true currency level.

As for the shock, it came in the form of 62-fold increase in the price of 95-octane gasoline to 6 bolivars/liter.

The price of premium gasoline will rise by 1,329 percent, but fuel is so heavily subsidized that fueling a small car will still cost about half the price of a soft drink, or about $0.23 based on the black market exchange rate. 91-octane gasoline will cost 1 bolivar per liter

Putting these prices in perspective for western readers should result in laughter: the new price for 95-octane is equivalent to $0.11/gallon using weakest official Simadi FX rate of about 203 VEF/USD, and 5 times less using the black market FX rate. The price previously was 0.097 bolivar/liter or about one-fifth of a U.S. cent per gallon.

And while the price is indeed laughable to western readers, price increases such as this one are all too tragic to the local population which is paid in local currency terms, and for whom this is merely the latest checkmark on the hyperinflationary wall.

Maduro's attempt to make the price increase more palatable failed: "The time has come for a system that guarantees access to oil products but that covers the cost PDVSA pays to produce it,” Maduro says during a national TV broadcast. "Venezuela has the cheapest gasoline in the world. The cost is almost nothing,” Maduro said before announcing new price.

But if it's almost nothing then why do it, aside from antagonizing your already miserable people?

The reason is that the measures are meant to help shore up the OPEC nation's finances as plummeting oil prices and a collapsing state-led economic model have left the country with a severe recession, triple-digit inflation and chronic product shortages.

"This is a necessary measure, a necessary action to balance things, I take responsibility for it," Maduro said, in reference to the fuel hike during a combative four-hour speech in which he insulted opposition leaders and occasionally used foul language.

The reforms risk fueling triple-digit inflation at a time when millions are struggling to make ends meet, and comes two months after the ruling Socialist Party suffered a blistering defeat in parliamentary elections due to anger over the crisis.

The package will likely be seen by Wall St. investors, who are increasingly concerned about a potential default, as mildly positive but still vastly insufficient to help Venezuela make some $10 billion in debt payments amid a major cash crunch.

"Bottom line is no change to cashflow for this year and hefty year end debt payments," wrote Siobhan Morden of Nomura in an email.

"The devaluation from 6.3 to 10 will not have a relevant impact," wrote economist and pollster Luis Vicente Leon on Twitter. "With respect to the gasoline, the only way to consolidate is to adjust (the price) regularly, otherwise it will be pulverized by inflation."

Critics say the only solution to Venezuela's economic problems is to entirely dismantle the 13-year-old currency system created during the government of late socialist leader Hugo Chavez.

Which will happen, but not before Maduro first sells all the country's gold, and then proceeds to obliterate the domestic economy, formerly known as the "socialist paradise" of Latin America.

We hope Bernie Sanders is paying close attention.

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City_Of_Champyinz's picture

Coming to a Bernie Sanders commercial near you soon: Socialism works! Look how cheap the gas is down there...

cheech_wizard's picture

Hillary for prison 2016...Bernie for gulag 2016.

Standard Disclaimer: Winning!

Durrmockracy's picture

We don't even need toilet paper anymore in a virtualized economy...

actionjacksonbrownie's picture

Look at that chart and then look up when Maduro became prez. He has certainly left his mark.

El Oregonian's picture

His skid mark....

Just before the crash.

Boris Alatovkrap's picture

This is what is look like when you are run out of other people's money.

TheAntiProgressive's picture

Good one, "Text  me TP, please......"

Bunga Bunga's picture

It's already a gulag for the middle class.

datapanik's picture

The next Gold smack down will be the funniest of them all, even though I ain't laughing.

bbq on whitehouse lawn's picture

To remove the ability of protection from a kings edict.
Its not the price of gold that kings dislike its the ability to disobey, edict..

overmedicatedundersexed's picture

Why is Norway solvent?? both venezuela and norway depend on oil both are socialist,both small countries, yet life is much better in Norway??

is it socialism or a combination of other factors..let me start by saying one is a black mixed race melting pot and one is well white european..nah nothing to do with it..sarc

nmewn's picture

"Clearly we need to ban paper products. The very existence of it interferes with our abilities in this centrally planned economy." - Venezuela central bank spokesman.

Well, isn't that ironic? ;-)

ThroxxOfVron's picture

"during a combative four-hour speech in which he insulted opposition leaders and occasionally used foul language. "

 

Wait...Profane language?

Trump or Maduro?

Hey, at least one of them was a bus driver...

nuubee's picture

Nothing like a little devaluation to make the Americans buy our shitty products... oh wait, I'm American...

Ausonius's picture

Socialism, Communism, Fascism, Cronyism, etc. etc. etc.

 

They all equal Rascalism and Dumbism.

SirBarksAlot's picture

I thought that Chavez put all of Venezuela's gold in Cuba.

Soul Glow's picture

But it's not hyperinflstion.  Becaue the establishment says so.

Citxmech's picture

I'm sure that all Venezuelan's are breathing a sigh of relief.  If this was being called hyperinflation somebody might get upset..

CHoward's picture

When I was growing up - 23cents was a lot of money...when you didn't have ANY.

Creepy Lurker's picture

Ah, the good 'ol hockey stick chart.

Coming to your neighborhood soon!

Yen Cross's picture

    The funny thing is, when this Madero clown goes, Venezuela turns into Egypt or Libya with some palm trees.

nmewn's picture

Well, a real capitalist always looks for opportunities in the misfortunes of socialistic games.

So...maybe it'll work out for us ;-)

Yen Cross's picture

 I love your sarchasm nmewn.

peddling-fiction's picture

@nmewn

Maybe it is time for The Company to do some domestic work for a change.

That always brings capitalism back to power overseas.

Note the lack of sarcasm tags. /lol

Niall Of The Nine Hostages's picture

Problem with socialism is that you run out of other people's money.

Then the other people take everything you have and sell you into slavery. 

That's why those other people bankroll socialist governments in the first place.

When Maduro finally goes, Wall Street will pick up Venezuela's oil for a song and enjoy a fresh wave of cheap waitstaff and charladies---aka Venezuela's former middle class. Everyone who matters will make out like a bandit.

eXWoLL_'s picture

Guess what, problem with any government is that they run out of other people's money lol. Welcome to reality.

eXWoLL_'s picture

Comparing democratic socialism with totalitarian socialism is like comparing capitalism with crony capitalism.

Any government job is to be socialist, they were "created" for that reason... oh wait, its the real world and they're just a bunch of psychos trying to get all what they hands can grab and their eyes can see (no matter if its a monarchy, democracy, totalitarian banana mambo or some non-mercantilistic hippie republic

The Iconoclast's picture

Patriotism, though it is based upon the natural and indeed instinctive love of home, has been elevated in the modern world into an unparalleled congeries of imbecilities.  What it demands of the individual citizen, as a practical matter, is that he yield not only his judgment but also his property and even his life to whatever gang of scheming politicians happen to be in power.

 

-- H. L. Mencken

eXWoLL_'s picture

Instinctive but sometimes needed. 

The historical cycle of nations and peoples was always based on their capacity to function toghether as one organism at the needed times. Once a group lose that capacity (at present - the democratic guys used to easy lifes that lost all potential for joint effort as a society), a rival group that has a stronger level internal force will take that place.

Always been that way, and will continue with that profile.

Anyways:

(ANY)ism + dumb people = disaster. 

Period.

 

innertrader's picture

This is what happens, eventually, to every socialist state that has ever existed....... and we are letting the NEW WORLD ORDER gang do it to the U.S.A.!!!!!  Time to stand up and be counted!!!

 

Rikky's picture

its too late for the USA as the socialists who don't live in the real word education system has already indoctrinated our kids for the past 30 years.  its not if we'll go down a similar road is how far and how fast.

silverer's picture

Unfortunately, by the time Americans stand up, the fat lady will be on her way home from the show.

The Iconoclast's picture

How would they be doing this if cash was outlawed?  It would be good to know in preparation for when they're gonna do it to us.

Kenyesian Seasonally-Adjusted Spot Gold's picture

The good news is if the same thing happens to the USSA, my stackz will be worth at least 10x the current value according to that chart  !  Too bad i lost everything in that boating accident.... You fuckers better get stackin !

 

RockySpears's picture

No, Your stack will be "worth" exactly the same.

iggenFlot's picture

I want a 1080p clip of when his people string him up.  I hope we don't get cheated out of it by another country taking him in.  He needs to go out like Mussolini.

Kenyesian Seasonally-Adjusted Spot Gold's picture

If all the illegal hispanics in the USSA were smart, they'd take their US Pesos at the current USD/Bolivar exchange rate, move to Venezuela buy some dirt cheap property,  and shut the fuck up. 

Benjamin123's picture

Property in Venezuela is cheap because everyone is selling but dont count on exchange rates gimmicks to stretch your money there. There is a single exchange rate, 1000 Bs/dollar, and prices reflect that.

In order to magically multiply your money there you'd need a permit to buy dollars for 10, or 6.3, Bs/dollar, which no one gets anymore. Its a fantasy.

NoWayJose's picture

How do you say "I should have bought gold" in Venezuelan?

tarabel's picture

 

 

Esto es lo que tengo para no votar en las elecciones anteriores

peddling-fiction's picture

(Qué vaina chico), debería haber comprado oro.

In parenthesis is optional, meaning "Damn it dude,"

silverer's picture

Any language will do. And they sure should have. lol
Any lessons here, folks?

tarabel's picture

 

 

What a terrific monument to socialism. 

1) The price of oil drops like a rock.

2) The price of gas in the socialist paradise goes UP,UP, UP 1329%

3) I hope Barack Obama isn't reading the newspapers or attending the daily briefings, as per usual.

SoDamnMad's picture

This is going to go over like a fart in church.  (Did you see the Pope go off on that guy that pulled him over and crush the little kid.   I thougt he was going to do something dark churchy on the guy)