It is interesting to see how prices emerge in a hyperinflationary environment like see in Venezuela. While the government finally cut its “official” exchange rate of 10 bolivars to the dollar, it continues to vastly overstate the value of its currency.
Luckily markets continue to find a way. Assisted by good old fashion corruption, military members and other government officials are able to profit off selling government supplies. Of course the question still remains: how is economic calculation is possible in a monetary climate as extreme as Venezuela?
In 2016, the Wall Street Journal published a fascinating article about a Home Depot employee named Gustavo Diaz who runs one of the most subversive websites back in his home country, DolarToday.com. The website takes information gathered from Venezuela black markets and uses it offer a real market value for the Bolivar. This information undermines the ability of the government and central banks to hide the consequences of their policies, leaving market actors better informed.
As Mr. Diaz puts it:
It’s ironic that with DolarToday in Alabama, I do more damage to the government than I did as a military man in Venezuela.
Another interesting measure has been pieced together by Bloomberg. Their Cafe Con Leche Index looks at the price of a cup of coffee in Caracas. A March 14th report has a .50 cent cup of coffee now costing 75,000 Bolivars, pushing the annual inflation rate over 4000%.
The rising price does create other challenges though. Increasingly merchants have relied on weighing cash used for transactions, rather than counting. Unfortunately this has created some new challenges for merchants, whose scales are not capable of handling the weights now required to buy goods such as ham. As Patricia Laya writes as part of a fascinating series Life in Caracus:
The store’s deli scales run to only six digits. And ham, my Whatsapp food-hunting community tells me, is retailing nowadays for about 1,480,000 bolivars per kilogram. It didn’t matter that I wanted only a few hundred milligrams. The cost was, at this market at least, incalculable.
A similar dynamic is impeding the use of credit and debit cards. The price of a set of sheets (33,541,963), a pair of Adidas sneakers (10,500,000) or even a slice of lasagna (401,450) can’t fit on the screens of older card machines; the solution is to split one purchase into several transactions. Even the invoice printers that many businesses use for reports to tax authorities are running out of space.
So how does a country like Venezuela reverse this sort of monetary chaos? Luckily the answer there is simple. It must end the socialist policies that destroyed the country, and abandon the Bolivar. At some point the latter will be inevitable. Hopefully for Venezuelans, the former is as well.
