Washington Post
Francisco Toro
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| People line up to withdraw money from an ATM in Caracas on Thursday. (Federico Parra/Agence France-Presse/Getty Images) |
The Inevitable Fruits of the Hugo Chavez's Regime
Venezuela has run out of cash. Not metaphorically, mind you: The country literally doesn’t have enough cash to go around. Two weeks ago, facing an acute shortage of paper money, bank regulators capped cash withdrawals at 10,000 Venezuelan bolivars per day — about $5.25.
As I write this, following an almighty rout on the black market, those same 10,000 bolivars are worth less than half that much: $2.17. (By the time you read this, the real number’s likely lower.) Stop and think about that: How on earth can a country work when the most cash anyone there is allowed to withdraw from their bank account in a day is two bucks and change?
The problem is twofold.
There is, certainly, a serious macroeconomic problem underlying the bolivar’s collapse: an enormous, unmanageable fiscal deficit nobody in their right mind would finance. That has led an irresponsible government to create huge amounts of new money out of thin air to cover its spending needs. Economists have known for 100 years that “monetizing deficits” this way feeds runaway inflation. It’s a result no one — except for Venezuela’s central bankers and their ideological supporters — seriously questions anymore.
Dealing with this problem isn’t conceptually hard, but it’s politically dicey. The kinds of spending cuts and revenue increases you’d need to head off hyperinflation are challenging for unpopular governments to make.
But it’s the other aspect of the problem that we need to consider here: Even now, with the bolivar trading at 4,600 to the U.S. dollar, Venezuela’s highest-denomination bank note is still the lowly 100-bolivar bill. This summer, it was worth barely a dime. Now, following the latest collapse, the most valuable note in circulation is worth a little more than 2 U.S. cents.
In an economy where 30 percent of adults don’t have bank accounts and many transactions are still carried out in cash, you can imagine the kinds of practical difficulties this poses. Paying for even the most trivial of purchases requires carrying around huge, Pablo Escobar-style stacks of bank notes. A Coke, if you can find it, will set you back 1,200 bolivars — 12 of the biggest bills. Lunch at a simple restaurant? At least 40 of those bills. Even a subsidized school lunch costs you at least 20 top-denomination bills. You can see how the numbers get out of hand fast.
Newspapers have been full of “colorful” stories about how Venezuelans have stopped using wallets — useless in these circumstances — in favor of straight-up bags full of cash.
ATMs, designed for normal economies, aren’t set up to dispense the enormous numbers of notes needed for day-to-day life. They soon run out of cash, needing to be restocked several times a day. This has turned safeguarding and transporting the huge amounts of cash needed into an enormous cost for local banks.
Delis have started using their scales to weigh not only slices of cheese and ham but also the stacks of bank notes needed to pay for them. It’s just quicker that way than counting them one by one. It’s funny, of course, unless you actually have to live this way. Which of course raises the question: Why doesn’t the government print up bigger-denomination bills? It’s a question many Venezuelans have spent most of this year asking themselves.
For at least a year, it has been screamingly obvious to anyone over 11 that Venezuela badly needed a 1,000-bolivar bill, and probably 10,000- and 50,000-bolivar notes as well. Printing up bills in higher denominations wouldn’t address the underlying problems, of course. But it would solve some of the most aggravating practical problems people now face.
What’s hard to fathom is why it’s taken so long. Unlike the politically difficult fiscal austerity package needed to put a lid on runaway spending, printing up higher-denomination bank notes is basically free. In fact, because you have to print up fewer of them, it saves you money rather than costing you money.
Finally, this week, it was reported that a first shipment of 500-bolivar notes has been ordered and will be distributed through banks in the coming weeks. At the rate the bolivar is depreciating, though, by then they may be worth just as little as the 100-bolivar note is now. Once people lose faith in money as a store of value, the sky is the limit.
Venezuela urgently needs clearheaded reforms to stop this monetary insanity. But it’s impossible to imagine that a government that can’t even manage the simple task of printing up bills with more zeroes could somehow muster the sangfroid it will take to tame the hyperinflationary tiger Venezuela is now riding.
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