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Home » Fatal Diagnosis: “Monetary Cancer” Eats away at Venezuela’s Financial System

Fatal Diagnosis: “Monetary Cancer” Eats away at Venezuela’s Financial System

In an interview with PanAm Post, economist José Toro Hardy said that the Central Bank of Venezuela is like a leukemia patient that has invaded its monetary flow and is destroying the entire productive apparatus.

Gabriela Moreno by Gabriela Moreno
December 3, 2020

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Economist José Toro Hardy told the PanAm Post that the BCV’s lack of autonomy violates the constitution and distorts the national economy (PanAm Post).

Spanish – The patient is in bad shape. There is a debate between agony and laziness about having to obey Nicolás Maduro’s regime. Issuing a stream of Bolivars relentlessly to curb inflation is almost a death sentence. That is the diagnosis of the Central Bank of Venezuela (BCV) made by the economist and diplomat José Toro Hardy in an interview with the PanAm Post.

“The blood of an economic organism is money,” and this “circulates through a network of banks and other institutions that make up the financial system, but Venezuela’s economic organism suffers from monetary cancer,” he assures.

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His diagnosis is equivalent to a “leukemia that has invaded its monetary torrent and is destroying the entire productive apparatus and the financial system of the country. Also, the heart is pumping sick money that is no longer able to fulfill its functions.”

This “monetary leukemia” is translated in economic terms into “inflation, and given its advanced stage, the diagnosis is extremely serious: hyperinflation.”

The former director of Petróleos de Venezuela highlights to the PanAm Post that “to keep the organism alive, dollar transfusions are being applied, but the very root of the evil is not being attacked because the cause of this devastating cancer is due to the extravagant production of money that has lost its value.”

The blame is on the Bolivar

The Bolivars recently issued to pay bonds to the population are also “guilty of hyperinflation by generating a runaway increase in prices because traders when calculating their costs, and the replacement of inventories do so at the rate of the dollar of the day,” emphasizes Toro Hardy.

In this way, the regime “has achieved a curious phenomenon that is hyperinflation in bolivars and inflation in dollars. Until the BCV’s autonomy is restored, there is no way to control this situation.”

Maduro abuses his power and “is destroying the national currency and the economy because inflation is not on the way to stop but to grow,” he emphasizes.

The U.S. Treasury Department has tried to prevent this. Last year it sanctioned the BCV “to prevent it from being used to continue looting Venezuela’s assets and enriching corrupt people,” said Treasury Secretary Steven T. Mnuchin in a statement released by the BBC.

An operation with irregularities

According to Hardy, the maximum financial entity of the South American country “violates the provision established in the constitution, which obliges it to be an autonomous entity.” And that was Maduro’s decision.

The move was like this: after losing the majority in the National Assembly in the 2015 elections, Maduro “issued a decree to guarantee himself absolute control over the Central Bank of Venezuela (BCV),” affirms Transparencia Venezuela.

“When the new parliament tried to reverse the situation, the constitutional chamber of the Supreme Court of Justice intervened to agree with Maduro,” the organization says.

To achieve its mission, it issued a decree that prohibited parliament from selecting and appointing members of the board of directors of the issuing entity, allowed it to keep the country’s macroeconomic indexes secret, and empowered it to finance the regime without having to submit to the control of the legislative branch, the organization details.

The assembly controlled by the opposition sought to dismantle the socialist initiative by approving a reform, but “the ruling was ready: the norm was rejected as ‘unconstitutional,’ and Maduro kept the issuing entity in his fist.”

The last consequence of this is that “in the last 30 days, the Bolivar depreciated by 100% when, at the end of October, the price of the dollar was in the order of 540,000 Bolivars (a year ago it was about 25,900 Bolivars). Now, it broke the ceiling of one million bolivars per dollar,” Toro Hardy told the PanAm Post.

More factors against

At the same time, the monetary base increased in a single week by almost 30% due to “the BCV’s financing of Petróleos de Venezuela and the digital bolivars trying to buy few goods. So the price of those goods -including the dollar- is skyrocketing.”

Thus, “the devaluation is also feeding back hyperinflation, which will worsen when the new taxes that the regime wants to apply to financial transactions in dollars are transferred to prices,” the economist predicts to PanAm Post.

Dollarization without a future

For a “true dollarization” to take place, the BVC should “call those who have local currency in the banks and give them dollars and, from that moment on, stop printing bolivars,” points out Toro Hardy.

That would be, in his opinion, “an effective measure,” but “what is happening in Venezuela is that consumption is being dollarized,” the specialist states. As a consequence, “liquidity grows in the public, but inflation continues and worsens because there are less and less available goods.”

To change this scenario and heal the BCV “which is dying, Venezuela needs to change its doctor,” concludes economist José Toro Hardy.

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Gabriela Moreno

Gabriela Moreno

Periodista venezolana residenciada en Chile. Egresada de la Universidad del Zulia. Experiencia como editora y productora de contenidos para medios impresos y digitales con énfasis en las fuentes de política e internacional.

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