Versión Español
Spanish – He accepted it. There is no longer any dissimulation. The socialist regime of Nicolás Maduro surrendered to the U.S. dollar, which he had described as “perverse,” and promised to “pulverize,” and began to manage its circulation in the Venezuelan banking system.
The use will be in his discretion and control. The operation is being organized together with officials of the Central Bank of Venezuela (BCV), revealed Bloomberg. In fact, meetings have already started with the executives of “a handful of local financial firms” to discuss plans to create a clearing and settlement system in U.S. currency starting next year.
The new system would turn the BCV into a “clearinghouse in dollars to carry out instant transactions between banks and companies,” the website said, adding that last month the entity prohibited local lenders from establishing their system without the supervision of the Chavista regime.
A delayed lifesaver
“Maduro’s proclamations on the dollar come 16 years after a failed exchange control,” warns Dinero magazine. “Everything points to the fact that the state of deep economic depression produced this change,” the article explains.
The article contextualizes Maduro’s decision in the debacle of his regime because “he has created a whole orthodox model of economic openness which cannot rescue the balances because there is no confidence in the key variables of the economy. The regime faces isolation and sanctions, and nobody believes it or its monetary authorities.”
In effect, the International Monetary Fund (IMF) predicted that this year Venezuelan inflation would increase by 200,000%, and with it, it will complete its sixth year of recession.
Dinero magazine also predicts that “although the exchange liberalization emerges as an option to recover the economy, it re be seen if it is not too late to achieve it and if the economic structure created will allow the free play of supply and demand.”
Senseless discourse
“Until recently, Maduro spoke of the narco-dollar, the criminal dollar, and the coup dollar,” points out Manuel Sutherland, economist, and director of the Center for Investigation and Worker Training (CIFO) in Caracas.
He explains that the theme of dollarization is going around in Miraflores as a sign of “a serious, although shameful, liberal turn” despite Maduro’s promise to “pulverize the perverse dollar.”
According to Sutherland, “the jubilance of Maduro and his closest collaborators with the informal and deregulated dollarization does not cease to be surprising.” In his opinion, “the most notorious patriots do not worry now about the loss of monetary sovereignty.”
But dollarization is a reality. Nicolás Maduro called for a debate on the subject, reported Infobae when he confessed that he is “attentive to all phenomena.” The dictator justifies his actions by claiming that “the economy has self-regulated” and that “all the economies of the world are dollarized” in some way.
He assumes it as “an option in the middle of a war, and that option has allowed the economy to breathe” because “thank God that dollarization exists!”
Indeed, the dramatic situation in Venezuela explains the de facto or “spontaneous” dollarization that allows the purchase of products priced in dollars. In this respect, Infobae reports, “in these cases, businesses tend to look at the exchange rate of the parallel market, not the official one.”
It is not so easy
Adapting the economy to the dollar requires certain conditions. This is what analyst Paul Dixin highlights at FxStreet. He affirms that it requires “sufficient confidence internally or internationally in its own institutions such that the value of the currency is unstable, and there is a constant risk of inflation.”
Without the right environment, risks will arise. Among them, the economist mentions “loss of the option to devalue the currency if costs are out of line and the loss of the option of Central Bank funding as an arm of government policy.”
In Latin America, three countries already formally use the dollar as their national currency: Panama, El Salvador, and Ecuador. But for countries with their own currencies, such as Venezuela, one route out of excessive domestic debt is “quantitative easing.” “This is where the Central Bank buys the government’s debt,” explains Dixon.
A bolivar without strength
“The depreciation of the bolivar with respect to the dollar is the fault of Chavismo that directs the BCV with an iron fist,” Manuel Sutherland notes. The economist points out: “It is not difficult to see how the bolivar has depreciated by almost 100% with respect to the dollar. In the last two years, the exchange rate has increased by 4,140,709.75 %.”
The culprits have been identified. “The disastrous result of the indicators cannot be blamed on the Trump sanctions or the blockade. Countries such as Cuba, North Korea, or Iran, strongly sanctioned, do not have even 1% inflation,” he points out.
“The bolivar has become worthless following seven years of economic contraction and failed policies. A recent plan to print a new 100,000 bolivar bill would make it the highest denomination yet, but still only worth 15 cents,” states a Bloomberg analysis.
The path of failure
There have also been numerous socialist attempts to manage foreign currency at will.
The history of failures includes Cadivi (National Commission for the Administration of Foreign Currency). In February 2003, Hugo Chávez decided to intervene in the exchange market by creating this organism as an autonomous entity in charge of the control of official currencies, quotas of travelers for foreign exchange, credit cards, and cash withdrawals outside the country.
A decade later, it was replaced by the Cencoex (National Center for Foreign Trade). At the same time, the Sitme (Foreign Currency Securities Transactions System) controlled by the BCV emerged to oversee the purchase and sale of bolivars of public debt securities denominated in dollars.
The list of failed attempts also includes the Complementary System for the Acquisition of Foreign Currency I and II (Sicad I and II) for importers. Later, the Simadi (Marginal System of Currencies) was launched. It allowed brokerage houses to offer 300 USD for purchase, without limits for sale.
More failed attempts
The checklist continues. Besides the National Center of Foreign Trade (Cencoex), there were also the System of Protected Currencies (Sipro) for handling food and medicines and the System of Floating Complementary Exchange Market (Dicom) for the weekly auctions with fluctuating exchange rates and managed by the BCV.
In the auction of socialist initiatives, the “New Dicom” arose for the purchase of 2000 dollars a year from natural persons and 400,000 from legal entities and the Currency Basket to eliminate the dollar from international payments and allow the free convertibility of the Chinese yuan, the Russian rouble, the euro, the Japanese yen, and the Indian rupee.
The most ambitious was the Petro. “Taking advantage of the cryptocurrency fever, Maduro launched the blockchain or to create the Petro, a currency backed by the price of a barrel of oil from the Venezuelan crude oil basket,” Dinero reviews.
The road was exhausted with the money tables constituted in May 2019 to authorize the purchase and sale of foreign currency in the banks. “It was the first step to make the exchange control more flexible,” states Dinero.
