Venezuela

Venezuela Relaxes Rules for Expats Sending Desperately Needed Money Home to Their Families

The country has liberalized one aspect of the disastrous capital controls established by Hugo Chavez in 2003.

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|||Credit: Claudia Guadarrama/Polaris/Newscom
Credit: Claudia Guadarrama/Polaris/Newscom

In 2003, Venezuelan President Hugo Chávez pegged the exchange rate of the bolivar to the U.S. dollar at Bs.1,600/$1, which was one of the most disastrous policies of his 14-year tenure. Over the ensuing decade and a half, the government engaged in out-of-control money creation, with the annual inflation rate now running at over 6,000 percent. The 100 bolivar note has become more valuable shredded up and sold as confetti than as a medium of exchange.

Imports of food and medicine have dried up, and many firms only survive because the government allows them to exchange bolivars and dollars at a special discount. Officials have "weaponized" this discretionary power, cutting off companies accused of "waging economic war against the country." Trading money at the official exchange rate, which has risen to Bs.F.80,000/$1*, means depleting its value by a factor of 36, using the black market rate of about Bs.F.2.9 million/$1 as a reference.

Desperate for foreign currency, the government has moved in recent weeks to liberalize one aspect of this policy: the system by which Venezuelans living abroad send money home to their friends and relatives. Vice President Tareck El Aissami announced the move last month as an effort to thwart "organized crime mafias that foster and promote the criminal dollar." He granted three agencies with a combined 124 locations—Italcambio, Zoom Casa de Cambio, and Insular—permission to begin processing remittances through the Western Union and MoneyGram networks.

It's not clear if the government gave the three agencies complete discretion to set their own prices, but on June 12, Zoom Casa de Cambio boosted its exchange rate offering to Bs.F.1.3 million/$1. Within the last few days, it hiked the rate to Bs.F.2.2 million/$1.

Jean Paul Leidenz, a senior economist at the Caracas-based consultancy firm Ecoanalitica, says it's possible the remittance agencies are eyeing the black market rate published by DolarToday, the news site founded by Gustavo Díaz, a Venezuelan-born dissident who also works as a salesman at a Home Depot in Hoover, Alabama. DolarToday listed the exchange rate at 2.2 million bolivars on June 12, but as of today the price has risen to 2.9 million.

Today, most black market trades happen between Venezuelans who hold U.S. bank accounts and execute parallel transfers in the two countries, so the dollars exchanged never enter the country. Liberalizing remittance transfers brings dollars into Venezuela to finance imports, and opens a channel to individuals who aren't lucky enough to hold a foreign bank account.

The three remittance agencies sanctioned by the government are required to sell the dollars they collect for bolivars through the government-run auction program known as the "Sistema de Divisas de Tipo de Cambio Complementario Flotante de Mercado," or DICOM, according to Leidenz.

"It's a positive step, but it's completely insufficient," he says. "The government still only recognizes the Bs.F.80,000/$1 rate for any other use…so the distortions are going to keep happening."

Bitcoin provides another mechanism for circumventing the official exchange rate when moving money into Venezuela. In Reason's January 2017 issue, I profiled a 32-year-old expat living in Brazil, who routinely enlisted a friend to bring cash across the Colombian border to deposit in her parent's bank account, which was both risky and slow. After discovering bitcoin, she was able her to transfer money to her parents fast and hassle free.

*This post has been updated to distinguish between the bolivar (Bs.) and the "bolivar fuerte" (Bs.F.), a new currency introduced in 2008 at the valuation of Bs.1 = Bs.F.1,000.

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  1. So they finally realized that you can’t steal from people with no money, eh?

    1. That’s why Venezuela wants to send its people to the US as asylum seekers, where they can then get US government handouts that they can send back to their folks at home.

      1. Yeah, that’s exactly what’s happening. You got it all figured out.

        1. Your sarcasm is touching in its innocence.

          In fact, that’s been Mexican government policy, encouraging Mexicans to come to the US and then sending remittances home.

    2. Hard to pay taxes too.

  2. A dystopian version of Atlas Shrugged is playing out right before our eyes and all reason can bother to talk about it bitcoin.

    1. One small paragraph at the very bottom of the article and you interpret that as “all reason can bother to talk about [is] bitcoin”? Seems to me that your sense of proportion might be a bit off.

  3. Fuck, that fair-weather freedom supporter Anthony Kennedy just gave us all an internet sales tax.

    The only good thing about it is that piece of crap Jeff Bezos will take the biggest hit from this of anyone.

    1. Hasn’t Use Tax been a thing way before there was an Amazon.com?

      1. Yes. But it is collected from the buyer, which is virtually impossible. Sales taxes are collected from the sellers. That is why states want them so badly.

        1. So let’s enforce the existing law in a more effective way, instead of continuing to do it half-assed and ineffectively, and that’s a bad thing?

          1. Yes. Because people disagree with the tax. I think a lot of drug enforcement is ineffective too. I don’t dream of a better enforcement of it.

    2. Actually, he’ll benefit, as Amazon already collects sales tax in every state that charges one.

      1. Yes, he will. This will do nothing but make it harder for small businesses to compete with Amazon. The cost of complying and collecting these taxes will make it impossible for most small businesses to sell on the internet. Only big companies like Amazon will be able to do so. Of course, Bezos will be happy to sell your product on Amazon and take care of the sales taxes for you in return for his cut.

        This decision might as well be called the “Let’s make Jeff Bezos and his cronies even richer”.

        1. This is an opening for a software entrepreneur to develop a program that automatically determines every sales tax by customer address, if there isn’t one already. Just buy the program and your business is set and doesn’t have to worry.

          1. It’s not that hard. It’s a list by zip code. In fact, I would be downright shocked if it doesn’t already exist

          2. And then link it to your accounting software in order to cut all the right checks at all the right times.

            Yeah, that won’t cost much.

    3. Bezos wont take a hit from this.

      People running cottage businesses on the internet are the ones who will suffer – they don’t exactly have the resources to track and file sales tax payments for dozens of states.

  4. “The 100 bolivar note has become more valuable shredded up and sold as confetti than as a medium of exchange”

    Sounds like this could solve the TP shortage.

    1. Speak for yourself, Captain Stonecheeks.

  5. So it was a bad decision to set the currency price to a commodity that you don’t have control over. Does that mean that the gold standard would be the same?

    1. The gold standard is where you fix the price of gold to your currency. You necessarily control the price of gold to be on the gold standard.

      1. You can’t control the price of gold, only the value of your currency.

  6. According to Vice News, the whole thing is a scam perpetrated by right-wing media. Venezuela is fine and the government is universally beloved.

  7. So in other word remittance is about to become a significant part of Venezuela’s GDP, eh (if it wasn’t already)? Well, I guess it’s true what they say of socialist nations and other people’s money so I’m not sure this is an ‘improvement’ but I imagine it will have better humanitarian outcomes…as long as the government keeps their hands off it. What are the odds?

    1. Four million Venezuelans have left their country since Chavez. Most still have relatives, particularly the elderly parents and grandparents, who are desperate for food and medicine. Of course they are going to send money home, one way or another. This may simplify it, but maybe not, as few trust the bureaucracy.


  8. In 2003, Venezuelan President Hugo Ch?vez pegged the exchange rate of the bolivar to the U.S. dollar at Bs.1,600/$1, which was one of the most disastrous policies of his 14-year tenure.

    I’ll admit to some ignorance here, but isn’t China doing essentially the same thing?

    1. Lots of countries peg their exchange rates to the US dollar. For most, it has many economic and efficiency benefits. Eliminates the need for a central banking infrastructure, etc. The difference is that most countries peg their exchange rates at something approximating reality and then accept the consequences of tying their economy to the US’s. Chavez didn’t.

      1. See: Argentina

        1. Exactly. It works until it doesn’t. Then bad things happen.
          Like the gold standard.

          1. Well, unless someone finds a pretty massive unknown trove of gold somewhere it’s slightly more stable. I wouldn’t really go out of my way to advocate for it though.

            1. The price of gold is stable? News to me!

  9. Too little, too late? I understand there isn’t much to buy these days: moving food products on open trailers anymore risks getting a load hijacked in broad daylight.

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