Just one day after Venezuela's historic currency devaluation, which lopped off 5 zeros from the currency and prices while bizarrely pegging the "sovereign Bolivar" - the country's latest currency incarnation - to the petro, an oil-backed cryptocurrency (which has been banned by the US Treasury), chaos has predictably returned to the country with the greatest petroleum deposits in the world.... and hyperinflation failed to depart for even one day.
That what Henrique Rosales discovered when he went to an ATM on Tuesday - the day after Venezuela's historic currency transformation took place - to withdraw Venezuela’s new currency: he found it dispensed a maximum of 10 sovereign bolivars a day, the equivalent of 15 U.S. cents.
"This money is going to disappear out of my hands in no time," said the 29-year-old waiter, who told the Wall Street Journal he hasn’t seen cash in five months. He hasn’t been able to pay for bus fare and walks several miles a day from his hilltop slum to the seafood eatery where he works.
"I’m realizing the government has no plan to get us out of this nightmare. What a disaster."
Rosales' reaction was predictable (we previewed the chaos that lay in store for the Latin American socialist paradise over the weekend): he is among the many Venezuelans swept by confusion and anger as the government of President Nicolás Maduro rolled out its latest economic overhaul as part of its struggle to keep up with the world's greatest hyperinflation, surpassing even that of the Weimar Republic.
Maduro called the measures “a really impressive magical formula” intended to stabilize the economy, including a new, highly devalued currency as well as tax and wage increases.
It wasn't magic: the country's new "sovereign bolivar" is identical to the old currency, which was named the strong bolivar, except the new bills miss five zeros. This was the government’s "answer" to a broken economic model that has seen prices double every few weeks.
Many shops remained closed, unable to obtain the working capital they need to transact; other shopkeepers said they had no idea how much to charge customers, while others, like construction worker Pablo Delgado, 44, doubted that a country suffering through dire food shortages and faltering public services would soon see a return to stability.
"For me," he said, “none of this is going to make any difference. Maduro says prices aren’t going to rise. But three days after his announcement, we have seen that they’re rising."
That's an understatement.
As we reported previously, on Friday night president (or as the White House calls him "dictator") Maduro - promising to contain inflation that has made a mockery of local workers' savings and labor - announced that he would introduce the new currency. Banks, which opened after a long holiday weekend - Monday was "made" into a mandatory holiday to give institutions an extra 24 hours to figure out the chaos - made the new bank notes available on Tuesday. And while ATMs appeared to have a daily withdrawal limit of 10 sovereign bolivars, bank tellers were willing to hand over 50, less than $1 a day.
Well before noon, most ATMs in east Caracas were out of cash according to the WSJ. Those standing in line to see a teller used their phone calculators to figure out how much money they could withdraw (they didn't like the answer).
Worst of all, the hyperinflation was not only back, but worse than before because within just a few hours of the new currency’s debut, its value had dropped nearly 10% to 65 sovereign bolivars per dollar, according to DolarToday.
By Wednesday, the [latest] bolivar had lost another 9%, and was last trading at 71.21 - a loss of 20% in 2 days.
But while nobody expected hyperinflation to go away just because 5 zeros had been chopped off, what set of the real chaos and sheer confusion was the government's decision to force an increase in the minimum wage to $30 a month from the less than $1 a month workers now make - a decision many battered businesses say would bankrupt them. The government said it would help small business make those payments by - drumroll - printing out even more bolivars, making the whole devaluation moot, while auctioning dollars three times a week to maintain a stable exchange rate.
But the worst news is that the socialist government's grip over the economy is about to get even tighter. Maduro is expected to announce new price caps on 50 basic products, extending a system of controls that has crushed the private sector. Meanwhile, as the WSJ so well summarizes, Venezuela is in default of $6 billion in debt, can’t pay to keep up its once-vaunted oil sector and is unable to reliably provide services like water and transportation.
Meanwhile, most economist predict that Maduro’s program will only exacerbate inflation that the International Monetary Fund says will top 1,000,000% by year’s end; it's currently at just under 110,000%.
Adding insult to injury, whereas the world was fascinated with Zimbabwe's bout of hyperinflation not that long ago, Venezuela's monetary plight barely registers. And while Venezuela’s currency troubles are reminiscent of Zimbabwe’s plunge into hyperinflation a decade ago - when its government printed a 100 trillion Zimbabwean dollar bill - whereas the iconic Zimbabwe bill quickly turned into a collector’s item and a warning of what eventually happens to every fiat currency...
... Venezuela’s bolivars haven’t provoked nearly the same interest because the new bills are virtually indistinguishable from previous ones.
“It’s hard to get excited about them, all of the notes are very similar in design,” said Owen W. Linzmayer, a San Francisco-based bank-note expert who catalogs world currencies. “Very soon, these bills are going to be worth nothing.”
Curiously, the WSJ notes that the new bolivar notes bear printing dates of January 2018, suggesting the Maduro administration had been planning the monetary conversion long before it was announced. What about the old, and now defunct bills? Not even the beggars want them.
In recent years, Venezuela’s government had spent hundreds of millions of dollars annually to import its old bolivars from large commercial printers like the U.K.’s De La Rue and Boston-based Crane Currency, supplier to the U.S. Federal Reserve. But now, many of those bills could be seen muddied and crumpled up on the street, so worthless that not even street beggars picked them up.
amazing photo from @business... people are literally trashing their #bolivar— Hilary (@queenofchartz) August 21, 2018
as #Venezuela carried out a 95% devaluation of its currency over the weekend amid an historic economic crisis. pic.twitter.com/OYa5SGLFGm
But Venezuela's biggest tragedy is not the hyperinflation or collapsing economy, nor the government corruption and the dictator in charge, it's that the people have simply given up. As the WSJ writes, an ineffective and disjointed opposition had called for a national strike on Tuesday, in response to the government’s economic measures.
But with so many businesses closing amid the economic malaise, it was hard to tell who was participating in the protest.
Some shopkeepers, like 63-year-old butcher Jesus Montes, said he just couldn’t take part: "I didn’t want to partake because my products would go bad and also because of my employees,” he said, noting that they needed to work and earn. “After my products are all gone, I don’t know what I’m going to do."
Fernando D’Abreu, owner of Peter Pan bakery, said he couldn’t afford to close his shop either. “I have to pay rent, light, the employees. At the end of the month, you have to pay taxes,” he said, wondering how long he and his eight workers could hold out.
Existential questions aside, Venezuela has more tangible problems: with hyperinflation still front and center, 33-year-old call-center supervisor Carolina Santeliz wondered how to use the few sovereign bolivars she withdrew.
“I don’t even know what to do, what I could buy. Maybe food, but it won’t go far,” said Ms. Santeliz, who earns $2 monthly and can’t help her mother pay for medication. “I’m afraid that one day I won’t be able to eat,” she said. “Sometimes I don’t even sleep as I think about how I could stretch my money.”
Others were convinced that things would just get worse.
“We are on a dead-end street,” said Vanessa Suárez, an accountant in Caracas. "Maduro’s measures are improvised. You buy what you can because you don’t know if there will be anything tomorrow."
And as long as Venezuela's starving and frightened people remain afraid, unwilling to rise up and overthrow their ruler, it is safe to say that tomorrow will indeed be worse than today.