By Pasqualina Curcio on October 5, 2020
Since 2018 we have been alerting people to the negative effects of making the money exchange market more flexible or freer. We stated that this decision would involve the flight of hard currency, and the response we were given was – What hard currency is there, in view of the decrease in oil revenues? To which we replied that, in effect, if what we are receiving as petroleum revenues is very little, all the more reason to safeguard it carefully. From that time to this, international reserves have fallen 25%.
We also stated that, if the decision were already made, the important thing is that the currency exchange market should be a means for the private sector to have their space to carry out hard currency transactions, so they won’t have go around whining and blackmailing with talk about how they don’t have anywhere to buy and sell hard currency, but also that in this market the hard currency of the Venezuelan nation, belonging to all the people of Venezuela, absolutely should be offered for sale, even though this might be very little. We have become aware of the auction of hard currency by the Central Bank of Venezuela a couple of weeks ago, directed toward businesses involved in production. It is clear that they have not published either how much was up for auction, nor for what price, nor who were the buyers. They also have not made public the hard currencies turned over to the private sector since 2014, with their respective names. They said that freeing the money exchange market would bring private sector foreign investment – we are still waiting for this to occur. We can show with the Central Bank of Venezuela’s own figures that private foreign capital has never brought their hard currency to Venezuela at all. On the contrary, they have been carrying off the hard currency that is ours, to the tune of about 700 billion since the years of the 70s, and 350 billion in evolution. It is their largest revenue source – to expropriate the petroleum, by means of the revenues that it produces. What conceivable reason would there be to think that now they would be bringing in hard currency in the middle of an economic war?
They also said that as soon as the money exchange market was freed, DollarToday would disappear as if by magic. They declared that this website was in existence due to the fact that there was control of money exchange and the type of exchange set by the Central Bank of Venezuela, and that, in the face of lack of confidence in this price, DollarToday publicized the “true” rate. We insisted over and over again that this illegal website would not disappear even if money exchange markets were freed, because it is a weapon in the economic war, apparently the most powerful.
Even the situation in Argentina with DollarBlue shows us this, and we remember that in spite of the fact that Macri removed the exchange restrictions as an initial government measure, DollarBlue ddid not disappear. It has not disappeared and, on the contrary, it remains active and continued to create havoc. Certainly, the Fernandez government has taken measures tending toward a greater control of money markets. They are sensibly taking care of their international reserves so that these do not take flight, especially now in the times of the pandemic when they are so necessary since the economies are half-way shut down. In contrast, we are suctioning them off.
On that occasion we also sounded the alarm that since the illegal site DollarToday would not disappear, what would occur is that the site would tend to control the free market price, which is exactly what has happened. This web site acts as a variable of a type known in economic theory as adaptive rational expectations. It publishes an exchange rate daily although this rate is not the true price of the bolivar currency, but rather a rate dependent on the instructions from Washington related to the intensity of the U.S. economic war. The economic agents who buy and sell dollars, who have spent years observing an ongoing depreciation, although this has been artificially induced, expect that this will continue to happen – that is to say – that the value will continue to depreciate. If you have $100 and need to sell them and the website publishes that the exchange rate is 400,000 bolivars to the dollar and this free currency market price is 300,000 bolivars to the dollar, what price would you sell at? You would go for the highest price, while those who are buying are trying get it for a $300,000 price, which you would not accept unless you were in a great hurry. Because of this, in the free money exchange market the supply and demand of hard currency is going to behave in a way that tends to conform to the prices set by the illegal website, and that website will become the reference for the rest of the prices in the national economy (except for the value of labor.) The illegal site is controlling the free market price and the Central Bank of Venezuela publishes the official price of the “free” market. And here we are, three years later, with the illegal site DollarToday still free to operate within the framework of a money exchange market also “free” so that the official market is controlled and subordinate to the illegal market.
If this were not enough, the criminal market is toying with the official market. The pattern of behavior shows that after great onslaughts of attacks on the bolivar, the exchange rate on these sites falls, then later rises again. This creates an effect on internal prices and induces inflation, which has a lag-time of about one month, and then returns to the charge. In this interval, the free market, which is being dragged along and which is therefore always behind the criminal market, is slower to recover, so that it reports the changes later. For this reason at times the official market, which is a reflection of the “free market” is above the criminal market rate.
What ‘advantage” does the Central Bank of Venezuela get from officially recognizing this type of exchange brought “the money exchange market?” What is it that governs the transactions of the nation when, for example, Petroleos de Venezuela SA sells dollars to the Central Bank of Venezuela; it is not the same if they do so at the price that the rest of the economy is working with – the rate of the criminal exchanges – as if they were to do so at an official exchange rate which is much lower. To give a more concrete example: if PDVSA sells $1000 dollars to the Bank and the rate of illegal exchange is set at 400,000 bolivars to the dollar but the official rate was 1000/$, the Central Bank would give 1,000,000 instead of 400,000,000. In this case the Petroleos de Venezuela SA would have fewer bolivars to meet its commitments, which of course are referenced to the illegal market rate, and there would also be fewer bolivars circulating as currency in the economy.
The rest of the businesses of the nation are affected in the same way as is shown in this example, for, even though they may not be selling hard currency to the Central Bank of Venezuela since they do not export, they are still pegged to an official exchange rate. However their suppliers are all referencing their prices to the rate of DollarToday.
The problem is not so much that the official exchange is being manipulated by the illegal exchange and as a result publishes a rate of exchange based on that. The problem is that, in spite of all the proof and evidence of the last three years including the confession of those who created the idea with US Republican Senator Richard Black as spokesman, the official exchange does not recognize that this is a weapon in an economic war wielded by criminals, and as a consequence, has not taken appropriate action based on this knowledge.
While this is not recognized, standard policies are being applied that are not directed at resolving the real problem, which is to stop the imperialist attacks against all the people of Venezuela, Chavista or not.
Source: Ultimas Noticias, translation Resumen Latinoamericano, North America bureau