While we often highlight the collapse of Venezuela's currency, the Bolivar, which just two weeks ago hit an all time low of 4,609 Bolivars to the dollar in the black market losing 60% of its value in one month, as socialism hits its terminal phase, we should also note that what goes down, must sometimes come up and in a surprising twist, over the past few days, the Bolivar has been the best (if only temporarily) performing currency in the world...
... soaring by over 60% since the start of the month.
That said, extending the time frame of the move puts it in the proper context - after a dramatic collapse which devalued the Bolivar from 1,000 to over 4,600 against the dollar, in less than a year, the currency has managed to recoup roughly half of the losses:
So while we congratulate anyone who bottom-ticked that particular move (and can now take both 2016 and 2017 off) having first found some exchange that actually trades the black market Bolivar, what is more interesting is the perplexing reason for the surge: according to Nomura analyst Siobhan Morden, the reason for the Bolivar’s massive - if transitory 0 gain on the black market over the past few days, is due to the collapse in the Venezuela money supply as the nation transitions to higher-currency notes!
Specifically, as a result of Maduro's attempt to copycat India and withdraw more than 75% of the paper currency in circulation by eliminating 100-bolivar notes, there has been not only a dramatic decline in liquidity but also a collapse in dollar demand, according to the chief economist at Torino. Which, ironically, means that Maduro may have actually pulled off one of his goals, the halting of conversion of Bolivars into dollars.
So for now, Maduro has managed to extract a very curious currency market victory. There is just one fly in the ointment: once Venezuela restores some semblance of paper currency, the outflows into the dollar and other stable currencies will return, and the collapse will resume. Which, of course, assumes that Venezuela will be able to do that - according to numerous media accounts, Venezuela will be nowhere near ready to implement the conversion to "new", higher denomination banknotes on time, if ever, and its already imploding economy may simply convert to a permanent state of barter.
One thing that we know for certain, is that the spike in the Bolivar has nothing to do with an improvement in the economy. According to the latest report "on the ground" from Venezuela, this time by Reuters, struggling parents are now giving their children away to neighbors, or simply abandoning them outright, as they see no hope whatsoever.
Struggling to feed herself and her seven children, Venezuelan mother Zulay Pulgar asked a neighbor in October to take over care of her six-year-old daughter, a victim of a pummeling economic crisis.The family lives on Pulgar's father's pension, worth $6 a month at the black market rate, in a country where prices for many basic goods are surpassing those in the United States.
"It's better that she has another family than go into prostitution, drugs or die of hunger," the 43-year-old unemployed mother said, sitting outside her dilapidated home with her five-year-old son, father and unemployed husband. With average wages less than the equivalent of $50 a month at black market rates, three local councils and four national welfare groups all confirmed an increase in parents handing children over to the state, charities or friends and family.
The trend highlights Venezuela's fraying social fabric and the heavy toll that a deep recession and soaring inflation are taking on the country with the world's largest oil reserves.
Nancy Garcia, the 54-year-old neighbor who took in the girl, Pulgar's second-youngest child, works in a grocery store and has five children of her own. She said she could not bear to see Pulgar's child going without food. "My husband, my children and I teach her to behave, how to study, to dress, to talk... She now calls me 'mom' and my husband 'dad,'" said Garcia.
Two-thirds of 1,099 households with children in Caracas, ranging across social classes, said they were not eating enough in a survey released last week by children's' rights group Cecodap.
In some cases, parents are simply abandoning their kids.
Last month, a baby boy was found inside a bag in a relatively wealthy area of Caracas and a malnourished one-year-old boy was found abandoned in a cardboard box in the eastern city of Ciudad Guayana, local media reported.
There are also more cases of children begging or prostituting themselves, according to welfare workers.
Abortion is illegal in Venezuela and contraception, including condoms, is extremely hard to find.
How does the mother who handed over her girl feel?
Pulgar was relieved that her child was being looked after properly by her neighbor. "My girl has totally changed," she said as another son clambered over her, adding that even her manner of speaking had improved. She said she would love to take the child back one day but does not see her situation improving.
Her sad conclusion: "This is written in the Bible. We're living the end times." Which, incidentally, may be a good enough reason as any to resume shorting the Bolivar...