This Is The End: Venezuela Runs Out Of Money To Print New Money

Tyler Durden's picture

Back in February, when we commented on the unprecedented hyperinflation about the be unleashed in the Latin American country whose president just announced that he would expand the "weekend" for public workers to 5 days...

... we joked that it is unclear just where the country will find all the paper banknotes it needs for all its new physical currency. After all, central-bank data shows Venezuela more than doubled the supply of 100-, 50- and 2-bolivar notes in 2015 as it doubled monetary liquidity including bank deposits. Supply has grown even as Venezuela has fewer U.S. dollars to support new bolivars, a result of falling oil prices. 

This question, as morbidly amusing as it may have been to us if not the local population, became particularly poignant recently when for the first time, one US Dollar could purchase more than 1000 Venezuela Bolivars on the black market (to be exact, it buys 1,127 as of today).

And then, as if on cue the WSJ responded: "millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy. But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar.

The shipments were part of the import of at least five billion bank notes that President Nicolás Maduro’s administration authorized over the latter half of 2015 as the government boosts the supply of the country’s increasingly worthless currency, according to seven people familiar with the deals.

More planes were coming: in December, the central bank began secret negotiations to order 10 billion more bills which would effectively double the amount of cash in circulation. That order alone is well above the eight billion notes the U.S. Federal Reserve and the European Central Bank each print annually—dollars and euros that unlike bolivars are used world-wide.

Where things got even more ridiculous for the government where the largest bill in denomination is 100 Bolivars, is how much physical currency it needed, and the cost to print it:

The high cost of the printing binge is an especially heavy burden as Venezuela reels from the oil-price collapse and 17 years of free-spending socialist rule that have left state finances in shambles.

 

Most countries around the world have outsourced bank-note printing to private companies that can provide sophisticated anticounterfeiting technologies like watermarks and security strips. What drives Venezuela’s orders is the sheer volume and urgency of its currency needs.

 

The central bank’s own printing presses in the industrial city of Maracay don’t have enough security paper and metal to print more than a small portion of the country’s bills, the people familiar with the matter said. Their difficulties stem from the same dollar shortages that have plagued Venezuela’s centralized economy, as the Maduro administration struggles to pay for imports of everything, including cancer medication, toilet paper and insect repellent to battle the mosquito-borne Zika virus.

Wait a minute, why not just print a single 100,000,000 Bolivar note instead of one million 100 bolivar bills? After all the savings on the printing, let along the air freight, to the already insolvent country will be tremendous and allow it to pretend it is not a failed nation for at least a few more days? It is here that the sheer brilliance of the rulers of this socialist paradise shines through:

Currency experts say the logistical challenges of importing and storing massive quantities of bank notes underscore an undeniable truth: Venezuela is spending a lot more than it needs because the government hasn’t printed a higher-denomination bank note—revealing a misplaced fear, analysts say, that doing so would implicitly acknowledge high inflation the government publicly denies.

 

“Big bills do not cause inflation. Big bills are the result of inflation,” said Owen W. Linzmayer, a San Francisco-based bank-note expert and author who catalogs world currencies. “Larger bills can actually save money for the central bank because instead of having to replace 10 deteriorated notes, you only need five or one,” he said.

 

The Venezuelan central bank’s latest orders have been exclusively only for 100- and 50-bolivar notes, according to the seven people familiar with the deals, because 20s, 10s, 5s and 2s are worth less than the production cost.

 

Mr. Maduro and his allies say galloping consumer prices reflect a capitalist conspiracy to destabilize the government.

Well, no, but at this point one may as well sit back and laugh at the idiocy of it all.  But at least we will give Maduro one thing: he has done away with the pretense that when push comes to shove, the state and the central bank (and thus commercial banks) are two different things: "the president in late December changed a law to give himself full control over the central bank, stripping congressional oversight just as his political opponents took control of the National Assembly for the first time in 17 years."

Sadly, that did nothing for the imploding economy and country, whose morgues are now overflowing due to rampant social violence.

Of course, the punchline of all the above means that Venezuela has to buy bolivars from abroad at any cost. "It’s easy money for a lot of these companies," one of the people with details on the negotiations said. 

The problem is that it is "very difficult money" for Venezuela which needs to pay in hard dollars to print its rapidly devaluing domestic currency. In fact, among the sources of funds to purchase its own money was the liquidation of its gold reserves, which as we reported recently, Venezuela has been quietly selling to willing offshore buyers.

* * *

All of this brings us to today's latest update in the sad story of Venezuela's terminal collapse: today Bloomberg wrote a story that basically covers everything said above, noting that "Venezuela’s epic shortages are nothing new at this point. No diapers or car parts or aspirin -- it’s all been well documented. But now the country is at risk of running out of money itself."

Indeed, as we hinted three months ago, "Venezuela, in other words, is now so broke that it may not have enough money to pay for its money."

Among the new information revealed by Bloomberg is that last month, De La Rue, the world’s largest currency maker, sent a letter to the central bank complaining that it was owed $71 million and would inform its shareholders if the money were not forthcoming. The letter was leaked to a Venezuelan news website and confirmed by Bloomberg News.

"It’s an unprecedented case in history that a country with such high inflation cannot get new bills,” said Jose Guerra, an opposition law maker and former director of economic research at the central bank. Late last year, the central bank ordered more than 10 billion bank notes, surpassing the 7.6 billion the U.S. Federal Reserve requested this year for an economy many times the size of Venezuela’s.

Venezuela had prudently diversified its money printing relationships, and ahead of the 2015 congressional elections, the central bank tapped the U.K.’s De La Rue, France’s Oberthur Fiduciaire and Germany’s Giesecke & Devrient to bring in some 2.6 billion notes, Bloomberg adds. Before the delivery was completed, the bank approached the companies directly for more. De La Rue took the lion’s share of the 3-billion-note order and enlisted the Ottawa-based Canadian Bank Note Company to ensure it could meet a tight end-of-year deadline.

As we reported four months ago, the cash arrived in dozens of 747 jets and chartered planes. Under cover of security forces and snipers, it was transferred to armored caravans where it was spirited to the central bank in dead of night.

But while Venezuela was already planning its future cash orders, the cash vendors were starting to get worried. According to company documents, De La Rue began experiencing delays in payment as early as June. Similarly, the bank was slow to pay Giesecke & Devrient and Oberthur Fiduciaire. So when the tender was offered, the government only received about 3.3 billion in bids, bank documents show.

Which led to an interesting phenomenon: when it comes to counterparty risk, one usually has in mind digital funds or electronic securities. In this case, however, the counterparty risk involved cold, hard cash: "Initially, your eyes grow as big as dish plates," said one person familiar with matter. “An order big enough to fill your factory for a year, but do you want to completely expose yourself to a country as risky as Venezuela?"

As Venezuela's full implosion emerges, the answer has now become obvious, and companies are backing away. With its traditional partners now unenthusiastic about taking on new business, the central bank is in negotiations with others, including Russia’s Goznack, and has a contract with Boston-based Crane Currency, according to documents and industry sources.

We expect these last ditch efforts to obtain much needed paper currency for the hyperinflating nation will break down shortly, forcing Venezuela into one of two choices: do away with cash entirely and resort to barter, or begin printing high-denomination bills which in turn will only facilitate even faster hyperinflation as there will be no actual physical limit on how much something can cost; as of right now the very physical limit is how many 100 bolivar bills one can put on a wheelbarrow.

Steve Hanke, a professor of applied economics at Johns Hopkins University, who has studied hyperinflation for decades, says that to maintain faith in the currency when prices spiral, governments often add zeros to bank notes rather than flood the market.

“It’s a very bad sign to see people running around with wheelbarrows full of money to buy a hot dog,” he said. “Even the cash economy starts breaking down."

In Venezuela's case it is sadly too late.

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Kirk2NCC1701's picture

They should stop buying overpriced HP ink.

And GS toilet paper.

The Saint's picture
The Saint (not verified) Kirk2NCC1701 Apr 27, 2016 6:18 PM

No, no, no. They are doing it all wrong. They should just giver everyone a blue crayon and tell everyone to add 4 zeros to every Bolivar bill that they have. At the same time the bank will add 4 zeros to every account balance.

Problem solved and billions are saved printing money.

SMG's picture

So national communism works out so well.  I can't wait for global communism. 

JackT's picture

Everyone knows you print the notes you are going to use to buy more ink and paper to print more notes first! #knuckleheads

Boris Alatovkrap's picture

Definition of shame is outspend, out print by… Zimbabwe thug regime.

Escrava Isaura's picture

 

 

Venezuela, THE Poster Child Of Misinformation.

Well, Venezuela can always embrace capitalism, after all, Venezuela Nominal Minimum Wage is about $477 USD compared to China’s $1,661 USD.

Venezuela has many internal issues. But Venezuela collapse is not accidental. Most of the money flows out of the country alongside of more than half of its oil.

Venezuela population: 30 million. That’s 1/10 of the US. The money Reagan spent in saving the Savings and Loans ($160 billion dollars) could feed Venezuela for years…… if the money is spent locally instead being sent overseas.   

 

http://www.opec.org/opec_web/en/about_us/171.htm

 

 

BuddyEffed's picture

Printing larger notes probably is something that needs to be ok'd first by TPTB

Unknown User's picture

Just like in the Weimar Republic, it is the banksters who are printing the money not the government.  They short the bolivar and then use the gains to short it even more.  It is war.  This article is total BS.

JamesBond's picture

Just take a marker and add 7 zeros to the end of each number already on the bill.  

ml8ml8's picture

Why would Venezuela want physical currency? They want debit cards for everyone so the government can use bank fees to feed negative savings rates to all and force the economy back to health by promoting consumption! It'll be a classic Keynesian success story! /s

--@ml8_ml8

Mister Ponzi's picture

Sounds like a story taken right out of an Ayn Rand novel. The only thing missing is Project X.

John Kich's picture

This is Donald Trump's most shocking statement yet,

However the mainstream media isn't saying a word about it!

What are they really trying to cover up?

http://legitorscamreview.com/the-final-bubble/

Redhotfill's picture

Uhm that link is in Taco Vendor,  I don't read Taco Vendor.

nmewn's picture

So I guess what you're saying is, that GOVERNMENT EMPLOYEES ARE JUST TO DAMNED STOOOPID TO BE IN CHARGE OF ALL THIS, just clueless doops, caught up in some bankers scheme to finance...well...itself.

Jeeebus.

fxrxexexdxoxmx's picture

Soccialists hate personal responsibility. Admitting ones failure results in immediate exclusion from their team, it forces other socialists to have counterrevolutionary thoughts.

jaxville's picture

  I wondered about that.  Does Venezuela have fractional reserve banking (government borrows the money)?  Is the central bank state owned and the government is directly spending the money without borrowing it?

stacking12321's picture

still don't understand what capitalism means, eh escrava?

well, keep trying!

in capitalism, there is no minimum wage or other price controls, people freely decide amongst themselves what offers to accept or reject in the marketplace, without government interference.

Escrava Isaura's picture

 

 

Great. Now tell us who prints the money. And how would you trade across borders.

 

Mr. Universe's picture

Gee, I don't know. How about using coins made out of metal? A precious metal perhaps that people would be willing to trade for goods and services. You know, something that has been consider rare and valuable since well, forever. How about Gold and Silver? No phony creating wealth, you have to earn it, or steal it, or regulate it to death. Yes, it's not the system that's rotten, it's the men behind them.

stacking12321's picture

with capitalism, people are free to accept any kind of currency they wish.

personally, i would prefer something that *cannot* be printed, something that has scarcity, like gold or silver, but to each their own. if you prefer to accept freshly printed dilma bux for your labor, you have that right - capitalism allows for a great deal of openness, allows for many ideas. it's just that the bad ones tend to go down in flames, as it should be!

 

 

nmewn's picture

I'm sorry you've lost me again, why am I (or anybody else for that matter) obligated to feed Venezuelans?

In the utopian socialist paradise that is Venezuela, isn't it the Venezuelan governments job to feed its starving people BEFORE feeding parasitical government employees & its cronies?

I've obviously missed something ;-)

lunaticfringe's picture

When I was a kid I bought a wallet but I didn't have any money left over to put in it. I could prolly get a nice government job in Venezuela.

spdrdr's picture

Was the "Oops" with respect to using that ridiculous term "prolly", or did you just accidentally duplicate the message?

Not My Real Name's picture

Good question. Maybe Escrava can regale us with a Noam Chomsky quote that answers it.

nmewn's picture

Noams response would probably run along the lines of...

"I really don't have a problem with governments counterfeiting money with reckless abandon until it becomes totally worthless, as long as it's given away to the people! With only a relatively small government carrying charge for the humble bureaucrats salaries & pensions tirelessly slaving away creating moar people rules having only the peoples best interests at heart, of course!"

Yeah, well, thats kinda sorta what the problem is with socialism Noam, you fucking retard ;-)

css1971's picture

Noam's an anarchist. He might once have been a socialist but he's obviously learned how government really works. Not the same kind of anarchist as Larken Rose mind you, but he doesn't believe in central governments anymore.

(I get lost in the different types of anarchism which idealists wished existed)

nmewn's picture

Plus one css.

However I find it hard to trust someone who once promoted the state over the individual, which is government socialism.

The supremacy of the individual is absolute, once upon  a time he felt the complete opposite.

All Risk No Reward's picture

Noam is controlled opposition. If not, he'd be "touching the money system" that his fellow MIT professors tell their students to "never touch" per Paul Krugman and Bernard Lietaer...

Paul Krugman (and MIT Economics Professors) to Lietaer: "Never touch the money system!"
https://www.youtube.com/watch?v=Q6nL9elK0EY

BTW, Steve Keen is also controlled opposition. He had his pants metaphorically pulled down in the comments section of this article and he ran away fully exposed because the fraud of his assertions are on display for all to see... he chose to protect debt-money fraud with absolute absurdities...

The Principal And Interest On Debt Myth
http://www.forbes.com/sites/stevekeen/2015/03/30/the-principal-and-inter...

Go to the comments section to see Steve Keen get completely exposed as a Bankster quisling in sheep's clothing.

Escrava Isaura's picture

 

 

Ordinary People Simple Don’t Understand The Intricacies Of Advance Financialization.

 

nmewn, why am obligated to feed Venezuelans? In the utopian socialist paradise that is Venezuela,….I've obviously missed something ;-)

 

You’re obviously missing a lot. Give you TWO examples. But before, the Bottom Line: The goal is to indebt the private and government sector of a nation. Then bankrupt both. Sell the good assets to the vulture funds. Have the government raise taxes on the citizens. Both profits to be sent to Wall Street. Is that simple.

  

Now the TWO examples:

1) Venezuela interest rate: 19.54%. Why? Of course there are many Hedgers that would love to make half of those returns.

2) Why the banks have NO money?

Well, below is your answer. Again, it is that simple, because it doesn’t involve socialism, Marxism, communism, of any knowledge of history.

https://www.youtube.com/watch?v=p5Ac7ap_MAY.“#t=32m39s

nmewn's picture

Apparently you missed the part where they have PLENTY OF "MONEY"...the only problem is, its now for all intents and purposes...worthless.

Its fiat. Its worthless. Its just paper.

Backed by...nothing...Maduro's word? Gold? Oil? Diamonds? Good will? A promise? Something? Anything? Nothing.

Its so worthless they can't even print enough to print moar paper nothingness in paper nothingness because its not accepted as ANYTHING...lmao!...nothing gets produced for NOTHING and nothing is the result of nothing, it has to be something or its nothing.

Faith? Credit? Lets do credit then...why doesn't the Maduro Bank & Trust lend nothing-fiat money to Maduro...on credit? Whats the fucking problem? Its just money...right?

You really DON'T get any of this do you?...lmao!

D Nyle's picture

No, he's a paid Hillary shill that Obama's borrowing to counterpoint bad info on the socialist paradice

StychoKiller's picture


BILLY PRESTON

Nothing From Nothing Lyrics

 

Nothin' from nothin' leaves nothin'
You gotta have somethin'
If you wanna be with me
Nothin' from nothin' leaves nothin'
You gotta have somethin'
If you wanna be with me

I'm not tryin' to be your hero
'Cause that zero is too cold for me, brrr
I'm not tryin' to be your highness
'Cause that minus is too low to see, yeah

Nothin' from nothin' leaves nothin'
And I'm not stuffin'
Believe you me
Don't you remember I told ya
I'm a soldier in the war on poverty, yeah
Yes, I am

[Instrumental Interlude]

Nothin' from nothin' leaves nothin'
You gotta have somethin'
If you wanna be with me
Nothin' from nothin' leaves nothin'
You gotta have somethin'
If you wanna be with me

You gotta have somethin'
If you wanna be with me
You gotta bring me somethin' girl
If you wanna be with me

Lyrics found <a href="http://www.elyrics.net/read/b/billy-preston-lyrics/nothing-from-nothing-...">here</a>

Chuck Walla's picture

“Paper money eventually returns to its intrinsic value – zero.”

~ Voltaire

FORWARD SOVIET!
TheReplacement's picture

You mistake criminality and treason for capitalism.  These are not the same things.  One of them is not like the others. 

 

Colonel's picture

How typically socialist, Escrava thinks the US should be responsible for feeding people in other countries. Tell the Venezuelan government to take care of their own people socialist parasite.

Antifaschistische's picture

Next time some kid asks me what profession I think they should seek....answer:  Print Shop Technician

Chuck Walla's picture

How do they pronounce "Weimar" in Spanish?

FORWARD SOVIET!

spekulatn's picture

Still waiting for Sean Penn to arrive and save the day.

:/

XAU XAG's picture

They could mint silver coins

 

Stop the shit in it's tracks

 

I know silver is volatile but not as much as they are having with thier paper money.

tricorn teacup's picture

The volatility of gold and silver appears to reflect the shakey confidence in fiat currency.

omniversling's picture

Another reason to get rid of cash altogether..."let them eat Baitcoin..."

Paveway IV's picture

Ebay: Zimbabwe 500 Million Dollars, 2008 P-82 Uncirculated (10 50 100 Trillion Series) $11.95 bid - too rich for me.

This circulated note is much more reasonable: Zimbabwe 10 Trillion Dollars CIRCULATED AA/2008 / $100 Trillion Series $3.95 Buy it Now

Question: Just how much circulation does a 10 trillion dollar note actually have?

Zimbabwe cancelled its old currency last year and uses SA rand or USD - there is no Zimbabwe currency today. Here's the good news from last July:

Bank accounts with balances of up to 175 quadrillion Zimbabwean dollars will be paid $5. Those with balances above 175 quadrillion dollars will be paid at an exchange rate of $1 for 35 quadrillion Zimbabwean dollars.

 

The highest – and last – banknote to be printed by the bank in 2008 was 100tn Zimbabwean dollars. It was not enough to ride a public bus to work for a week.

 

The bank said customers who still had stashes of old Zimbabwean notes could walk into any bank and get $1 for every 250tn they hold. That means a holder of a 100tn banknote will get 40 cents.

"Hey - can anyone here break a 100 trillion dollar note? I have to catch the bus in a minute and they only take exact change for fares: 25 trillon dollars."

krispkritter's picture

Old Zimbabwe, meet the new Zimbabwe...

Mr. Universe's picture

I was in Zimbabwe 4 years ago. Hawkers on the street would sell you a stack of big bills for a buck. No store we went in to wanted anything to do with them. The US dollar and the Rand were welcomed. Prices were sky high as well. People we talked to were of two differing opinions, too. First was we are screwed, but I have a job but no hope for a future. Second was we are screwed, no job, no hope, can I have your shoes?

DontGive's picture

I got my eye on that wheelbarrow. Much more usefull!

omniversling's picture

Even the 'number of the beast' on the wheelbarrow is inflated...