It’s been a while, but I imagine it works the same as any country where you order from the US Amazon site (some countries have local versions in local currencies). When I bought stuff from US Amazon from South Africa I’d just buy the USD denominated merchandise with my local Masttercard / Visa, and it was up to my local credit card company to do the currency conversion. Shipping was expensive.
Assuming there aren’t hyperinflation related complications or unreliable shipping I imagine it works the same for Venezuela.
In a capital controls situation as is the case for the Venezuela, the payment processing will reject any hard currency type transaction - unless a person has the access to a hard currency account that is permitted (I do not know if Venezuela in fact even permits this) to execute the hard currency transaction with the non-resident counter party.
A domestic online retailer would be facing the same problem as an ordinary retailer - to import the goods they will need the hard currency and this will need under the capital controls, approvals or permissions via the foreign exchange office or the central bank.
Nobody is under the illusion anymore that Venezuela is a socialist paradise, you’re arguing against a strawman here.
In December 2016, it got bad because the new banknotes got delayed and people started weighing notes rather than counting them. Now, the situation is back to normal again because the 20,000 Bolivar note, while not perfect, is at least is practical for everyday commerce.
And while 6% weekly inflation is bad in a macro sense, it’s still largely manageable in a day to day, logistics sense. It’s a far cry from Hungarian hyperinflation were prices were doubling every 15 hours.
Lemur866’s post that I was responding to is made up. The Bolivar might be severely depreciated as a currency but it hasn’t collapsed quite yet. People are still transacting in Bolivars. If you go there with US dollars, you might be able to spend them but the change you get back is going to be in Bolivars.
The West’s reporting is limited although that reflects more American myopia with foreign affairs rather than any deliberate coverup. However, when it is covered, it’s almost exclusively a bunch of misery porn that is about promoting a simplistic narrative rather than providing useful context (even on Al Jazeera English which is the best regular source of English reporting in the region).
One of the few reports that runs significantly outside of that narrative was an episode of Vice’s State of Undress last year that looked at the Venezuela beauty pageant industry. People were still spending money on plastic surgery, pageant coaches and fashionable clothes. Not everyone is stuck on a depressing grind of trying to survive, there’s still a fair chunk of people who, while their circumstances have gotten worse, are still living a day by day regular life. But most Western reporting is careful to exclude them from the frame to focus exclusively on a simplistic narrative that feeds into people’s preconceived notions.
I suspect you are mistaken. A pocketful of old dimes will buy you consumer goods more easily than gold coins, or even worse gold bullion as you see in movies.
I’m sure the Venezuelan 1% - or even 10% - is doing just fine. It always is. It was also great to be a French nobleman in 1788, or a Russian nobleman in 1916.
Your threshold for calling inflation “hyperinflation” may be a little off. A friend of mine who’s an economist calls an annual inflation of 10% or higher hyperinflation. He’s also an inflation hawk; I’d call that too alarmist. But more than 1000% per year? That’s hyperinflation without any questions.
Just because the situation is not as bad as the worst ever, doesn’t mean it’s not hyperinflation.
The definition of hyperinflation appears to be a bit blurry. A cursory search ends up mentioning at least two different definitions, one rather old and another rather more modern.
The “old” definition: Written in 1956 in a book by Phillip Cagan titled “The Monetary Dynamics of Hyperinflation”, wherein he defined a hyperinflationary episode as beginning when the monthly inflation rate exceeds 50%, and ending when the montly inflation rate drops below 50% and stays like that for 1 year minimum. Apparently this definition is the one most used by economists.
The latest numbers I could find about Venezuela were an annual inflation rate in February 2017 of roughly 741%. If my maths are right, that translates to an average monthly inflation rate during the previous year of roughly 73.5% - well within the criteria defined by Cagan.
There is an alternate definition which is more of a definition from an “accounting point of view”, which deals with how people are acting in their daily lives, and with how to do accounting in times of hyperinflation. If those factors are present, that would indicate the existence of hyperinflation. This definition (well, rather, “guidelines”) was created by the International Accounting Standards Board. The factors to watch out for are the following:
[ol]
[li]The general population prefers to keep wealth in non-monetary assets or in a foreign currency that is relatively stable. Amounts of local currency are immediately used in order to maintain purchasing power.[/li][li]The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency.[/li][li]Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short.[/li][li]Interest rates, wages, and prices are linked to a price index.[/li][li]The cumulative inflation rate over three years approaches, or exceeds, 100%.[/li][/ol]
According to this second definition, it is also likely that Venezuela is in the throes of hyperinflation.
So, even though there are two main definitions for hyperinflation, it would appear that Venezuela is, indeed, suffering from it. Whether the source is unrestrained money printing (like what happened in Zimbabwe, Hungary in 1946 and Germany in 1923) or some other tremendously deleterious screwing of the country’s economy at a basic level… That is for further analysis.
And the crazy thing is that Venezuela’s oil reserves would normally bring in enough hard currency to the country to keep things going even if the rest of the economy is falling apart.
I suppose. What I meant was in the extreme anyone with significant wealth wouldn’t want it in terms of an asset, not in a chaotic environment.
Those definitions of hyperinflation are interesting. Some believe the threshold is more psychological. Inflation is one thing, but hyperinflation is that point when confidence in the currency is completely rejected. The chaos that this must cause is unbelievable.
One thing that business, large and small depends on is stability, or certainty. The concept that two or three or five years down the road, things will be pretty much the same as they are now in terms of interest rates. Bonds will mature, get paid off, the political situation will be stable. The laws will be rational, etc. Even in good times planning ahead several years gets complicated. But in a stable society it’s a whole lot less stressful.
Not that government goons with machine guns show up to force your company to sell at a loss, and “paid” in an ever depreciating currency.
Did you leave “business” out of that list on purpose or by accident? To be sure, a corrupt / stupid / evil government trumps (heh :)) smart honest businessmen. But I think that a corrupt / stupid / evil business elite trumps (heh :)) smart honest academicians or the press.
Not really.
The difference you’re speaking of is simply that dimes are a recognized common currency and the gold coins in existence today are not commonly recognized. Imagine the US Mint also made a gold coin we all know and recognize. Maybe it’s this thing near the size of a dime but with a $50 face value or whatever.
In that case a “pocketful of old common gold coins” will be far more useful than a “pocketful of old common dimes” That was Tater’s point. ETA: Which I now see he has defended as well.
As well, there’s the Russian mal-government version of uncertainty that has nothing to do with inflation: The goons show up and announce they’re taking a 55% ownership stake in your shiny new business.
It’s the almost certainty of this uncertainty that prevents any white-market businesses much larger than street vendors.
Or they require continuous bribes at an ever increasing percentage of your take as you grow. Which amounts essentially to giving the goons cumulative preferred stock in your venture; they get dividends whether or not you get profits. And because of the guns, they can convert their shares into voting shares whenever it suits them at whatever conversion rate suits them.
741% per annum works out to be 19.3% per month, not 73.5%. That’s the power of compounding. Regardless, nobody uses the Cagan definition anymore. I’m guessing you got that from the Wikipedia page on Hyperinflation which, unfortunately, is held hostage by a bunch of zealots who won’t let anybody put an accurate summary on there. By most internationally accepted measures, Venezuela is in economic hyperinflation. But that’s very different from the experience of the man on the street for which, while dealing with inflation economically ruinous and makes it impossible to build wealth, it doesn’t affect things too much on a practical, day to day level as everyone just checks the black market rate on their phones every morning and then uses it to set prices for that day.
Gasoline is one of the few things in Venezuela that is both price controlled and not in short supply so it’s not very useful as currency.
Even if there were such a coin, nobody in Venezuela has the assaying equipment to determine the authenticity of gold and nobody has the hard currency to buy it.
I was just reacting to Paul’s statement about how silver coins would work much better than gold coins for reasons he didn’t share.
There’s another overlay affecting tangible tradables used as a quasi-currency or even actual official real currencies: the higher the denomination = value per unit, the greater the incentive to counterfeit. In the US today one ought to inspect any $100 bills one receives carefully. No need to worry about the $1s. Both gold and silver coins or bullion can be adulterated. But the motivation is hugely in favor of adulterating the gold.
Really. My brother has a prepper neighbor with a big chunk of gold somewhere in his house. I just shrugged and said that if it really is an End of the World as We Know It scenario, ammunition and liquor would be better.
What I meant was, anyone with substantial wealth with an eye towards leaving the country, silver is a poor choice. It’s way too bulky, and heavy. For small purchases it would be good. Gold bullion coins are pretty tough to fake convincingly, that’s one of the attributes that makes it ideal for storing wealth. No assay required. The big bars are another story. Bitcoin would be a good method, or could be, but hacking is a possibility. T-bills, swiss accounts, etc.
I doubt that bitcoin would be a good place to park your money to escape from hyperinflation. The currency is very volatile—you could lose much of what you had if the value of bitcoin took a sudden plunge. For example, according to this site bitcoin lost about 35.8% of its value against the dollar between June 11, 2017 and July 16, 2017. It did recover a lot of its value in the succeeding couple of weeks, but even now it’s about 10% lower than it was about seven weeks ago. There are much better places to put your money if you’re concerned about stability.
I’m usually the one to point out bitcoin’s instability… but it is at least holding its value better than the bolivar. If I had to hold onto one of the two I know which I’d choose.