| As if things were not already chaotic enough in the socialist utopia of Venezuela, following President Nicolas Maduro’s decision to follow Indian PM Modi’s playbook and announce that the nation’s largest denomination bill (100-Bolivars – worth around 3c) will be pulled from circulation in 72 hours, he has tonight closed the border to Colombia to crackdown on currency smuggling by so-called “mafias”.
As AP reports, President Nicolas Maduro on Monday ordered the closure of Venezuela’s border with Colombia for 72 hours in a crackdown on currency smuggling by what he has called “mafias” trying to destabilize the socialist-run economy.
Maduro announced the decision after meeting with top economic aides. Earlier in the day, supporters of Maduro’s socialist party circulated drawings on social media of criminals trying to smuggle cash into Venezuela like drugs.
“This is an attack against Venezuela, so this is a necessary, unavoidable measure,” Maduro said in announcing the border closure in a televised address alongside top economic aides. “It’s the first of a series of decisions that we’re going to be taking to defend our bolivar, our economy and our people.”
The border closure comes as Maduro is trying to curb Venezuela’s galloping inflation and roll out a new range of bank notes after announcing on Sunday that the government would pull from circulation a 100-bolivar bill. It is currently the country’s largest-denominated bill but worth only about 3 U.S. cents at the widely used black market rate.
Maduro warned Sunday that people would not be allowed to bring back 100-bolivar bills from outside Venezuela to trade them in for the new bank notes.
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Maduro has long accused criminal gangs operating along the border of trying to smuggle everything from truckloads of subsidized food to gasoline sold in Venezuela at the world’s cheapest prices.
He compared the trade in cash to something like a centrifuge by which “mafias” operating from the Colombian border city of Cucuta buy scarce bolivars with hard currency and then recycle them back into Venezuela for a huge profit, driving down the currency’s value in the process.
He said that earlier Monday 64 million bolivars in cash had been seized coming across the border on dirt trails that proliferate along the 1,378-mile (2,219- kilometer) border.
There was no immediate comment by Colombia’s government. President Juan Manuel Santos and his top aides are visiting several European capitals after the Colombian leader over the weekend received the Nobel Peace Prize in Oslo.
In closing the border again, Maduro tried to sound conciliatory to Santos, saying the two had discussed the issue previously. He also seemed to acknowledge the seriousness of Venezuela’s cash crunch by announcing a series of measures to stimulate electronic-based transactions.
Despite heavy printing of the 100-bolivar bills – 2.3 billion this year alone out of 6.1 billion in total – they are in short supply.
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| Venezuelans rushed to spend their 100-bolivar notes Monday, before the government’s Wednesday deadline for taking the note out of circulation, and there also were logistical concerns about how authorities would remove the more than 6 billion 100-bolivar bills in circulation, and whether replacement bills were ready. Furthermore, as Bloomberg notes, according to a report by Torino Capital, a New York investment bank, the 100-bolivar notes account for more than three quarters of Venezuela’s cash outstanding and 11 percent of the nation’s money supply, making Maduro’s decree a difficult task for a nation in the throes of an economic crisis.
An estimated third of Venezuelans have no bank account and keep their savings in the soon-to-be-worthless bills. Venezuelans are in open revolt… (as Reuters reports)
Luis Volcanes, 36, had for six weeks withdrawn cash every day but on Monday ran around with a big brown envelope trying to deposit that same money, only to find cash machines at four banks in a row were not working.
“This seems crazy, like the government did this on a whim. I don’t know what I’m going to do,” Volcanes said as people trickled in and out of a bank in Caracas, complaining none of the machines worked.
One man unable to deposit money yelled, “This is total chaos!”
At least one shop owner threw his hands up in frustration.
Lucio Colombo, 47, who sells gifts and snacks in Caracas’ wealthy Chacao district, has asked clients to pay in cash for the last two weeks because his credit card reader no longer works.
“So how do I get paid now?” he asked. “I was thinking of bringing my laptop so people can pay me by transfer – or I could just go on holiday. They are forcing me to stop working.”
Chaos, indeed, but just remember this is not the doing of the socialist government…
The government said Machiavellian businessmen are hoarding goods and bloating prices to sabotage socialism. Interior Minister Nestor Reverol on Monday said criminals also were hoarding 100-bolivar bills in places such as Switzerland and Ukraine as part of a financial attack on Venezuela.
He showed photos of stacks of bolivar bills but presented no further evidence.
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Economists scoff at the official line, pointing instead at strict currency controls and price fixing that hurt imports and reduce incentives for production. They said Maduro’s measure will do nothing to improve product supply.
“I’ve never studied or heard of an economic theory that explains this measure,” said Carlos Miguel with Caracas-based economic consultancy Ecoanalitica.
Adding to the aggravation, Monday was a bank holiday, meaning there were no tellers.
While many business were not accepting 100-bolivar bills, poor people living day to day could not afford to reject cash and many were using the bills to buy food for the day.
“I’ll take everything you can give me to eat today,” said taxi driver Jose Manuel Henrique, 49, whose cash income goes entirely to feeding his two children.
Still, Henrique, a former supporter of late socialist leader Hugo Chavez, was annoyed. “The government can’t get anything right. This wasn’t thought out.”
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| A sign that reads ‘We inform our clients that 100 bolivar notes will be accepted until Tuesday 12/13/16. Thank you,’ is displayed at a bakery in the slum of Petare in Caracas.
A 100 bolivar note is seen next to a sign that reads ‘100 bolivar notes are received until today,’ at a store in the slum of Petare in Caracas |
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| The big question of course is how long before the new bills become truly worthless?
And remember, as we noted earlier, Venezuela’s inflation has officially become the 57th official, verified episode of hyperinflation and been added to the Hanke-Krus World Hyperinflation Table.
With Venezuela’s move, we can now add the insolvent Latin American country to an increasingly large group of countries including India, Sweden, and Australia, which in recent months have been on a quiet crusade to eliminate all forms of paper money. Certainly, Venezuela will not be the last as only full control over a nation’s currency will allow governments to enact global negative rates, something which is inevitable once the current “Trumpflation” euphoria finally ends. |
Venezuela Bolivars per Dollar Black Market FX Rate - Click to enlarge |
