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Short On Dollars, Venezuela Tries To Halt Black-Market Trading
Originally published on Mon March 24, 2014 9:45 pm
The Venezuelan capital, Caracas, can be one of the most expensive cities in the world — or one of the cheapest. It all depends on how you exchange your dollars.
At a fast food restaurant in the city recently, a pretty tasty plate of chicken and rice cost me 160 bolivars. At the official exchange rate set by the government, that works out to a little more than $25; at the black market rate, it's just $2.
Needless to say, most anyone who can change money on the black market in Venezuela does so.
As one person told me: "For people like me [who are] paid in dollars ... it is easier and better to change your dollars in the black market where the price is higher, and the ways are much easier than the official ways."
He didn't want his name used because changing money on the black market can come with a six-year jail sentence.
In most countries, you change your dollars for the local currency at a price the market deems fair. In Venezuela, the government fixed the price at 6.3 bolivars to the dollar. But the black market said that price is ridiculously low. Recently, 1 U.S. dollar in Venezuela could get you up to 90 bolivars.
The rate has come down since then. Reuters reports that the black market rate was about 58 bolivars to the dollar on Monday, the same day that the government introduced a new exchange system.
The exchange rate is just one example of the economic crisis that has prompted weeks of unrest in Venezuela. Many basic goods have been in short supply, and inflation has been running at more than 50 percent under President Nicolas Maduro, who champions a socialist economy, as did his predecessor, the late Hugo Chavez.
How Do You Get Dollars?
At a Caracas cafe, a student named Andrea told me that crime, the lack of opportunities, and political tension are the reasons she wants to leave Venezuela and study abroad. She's headed to the U.S. if she can get dollars from the bank at the official rate to pay for her tuition.
But the Venezuelan government and the banks don't want to part with the dollars they have, so it is incredibly hard for people like Andrea to get them. And buying dollars on the black market would be exorbitantly expensive.
She pulled out a 34-page document. First, she said, you have to apply online. Then you need to get all these documents together, get them certified and in some cases translated, and make three copies to present to the bank.
Among the papers she has to provide is her class schedule, her mother's birth certificate, her school diploma, a letter explaining her reason for leaving the country, and on and on. It takes weeks to get the information together, and there is a limit to how many dollars she can apply for.
One document she needs is a copy of her airplane ticket, which she has purchased. But she says that unless she gets the dollars, she won't be able to afford the trip. Many people don't get the dollars they've asked for, and aren't told until the very last minute.
Because the government has set an artificially low price for U.S. dollars, everyone who needs them wants to buy from the government — but the government doesn't have enough to go around, because the demand is so high.
All Venezuelans doing business with the outside world want these cheap dollars.
Let's say you're a Venezuelan businessman who needs to import goods from Miami. You need dollars to pay for the shipment, but the government won't give you any. What do you do?
I went to a dark shop that sells clothing off a main shopping street in the capital. The owner here is also a money changer. In fact, most businessmen you meet in Caracas are constantly trying to buy dollars.
One businessman told me he had never been able to get money at the official rate from the banks despite numerous applications — which means the only way to get dollars is to trade them in.
But in the illegal, secretive black-market system, how do you determine the price of a dollar? The owner at the store whips out his computer and looks at dolartoday.com. This particular website has had many names and incarnations, but it's the one people go to now to get the black-market rate for dollars in Venezuela.
And this is where it gets really weird: Venezuela's economy — what people all over the country are buying and selling pegged to the dollar — is determined though a murky website run out of Miami.
Venezuelan economist Robert Balsa, who teaches at the Catholic University in Caracas, says the website makes its calculation by looking at the dollar reserves the Venezuelan government has and the rate being used by traders in the Colombian border city of Cucuta.
He says what's so shocking is that this calculation should serve as the basis for so many transactions. And, he adds, it's all because the government's policy means that Venezuelans can't get the dollars they need at the official rate.
As Venezuela's government launched the new official currency exchange system on Monday, the rate was fluctuating between 50 and 55 bolivars to the dollar. But few people were buying at that rate, Reuters reported.
Still, the black market is taking notice — that's well below the recent high of 90 bolivars to the dollar.
ROBERT SIEGEL, HOST:
Venezuela rolled out a new currency exchange system today to help rein in the black market for American dollars. NPR's Lourdes Garcia-Navarro reports that the country's currency controls are behind many of its economic problems.
LOURDES GARCIA-NAVARRO, BYLINE: Caracas can either be one of the most expensive cities in the world or the cheapest depending on how you change your dollars.
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GARCIA-NAVARRO: So I'm at a restaurant - fast food, nothing fancy - here in Caracas. I've just ordered a pretty tasty plate of chicken and rice. And it's costing me 160 bolivares - that's the Venezuelan currency. Now, at the official exchange rate, what the government and banks want you to change at, the price is just over $25. But at today's black market rate, it's just two bucks. So needless to say, anyone who can does change money on the black market in Venezuela.
UNIDENTIFIED MAN: And, for example, for people like me, I get paid in dollars, so it is easier and better to change your dollars in the black market where the price is higher and ways are much easier than the official ways.
GARCIA-NAVARRO: That's a friend. He doesn't want me to use his name because changing your money on the black market in Venezuela can lead to up to a six-year jail sentence.
This is the way the currency controls here work. In most countries, you come with your money and you can change it for the price the market deems fair. In Venezuela, up until now, the government has fixed the price. It says one dollar is worth 6.3 bolivares. But the market, in this case the black market, has said that price is ridiculously low. And recently, one dollar in Venezuela could get you up to 90 bolivares. It's a huge difference.
Now it's clear what you should do if you have dollars. But what if you want dollars?
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GARCIA-NAVARRO: At a cafe in the capital, we meet Andrea. She's a student with long hair that falls down her back and tight jeans.
ANDREA: (Foreign language spoken)
LOURDES GARCIA NAVARRO, BYLINE: She tells me that crime, the lack of opportunity, the political tension are the reasons she wants to leave Venezuela and study abroad. She's headed to the U.S. if she can get dollars from the bank at the official rate to pay for her tuition and expenses.
ANDREA: (Foreign language spoken)
NAVARRO: Unless you are a multimillionaire, she says, you can't buy dollars on the black market to pay for your U.S. education. It becomes crazy expensive, she says. But to get those U.S. dollars legally is incredibly hard. She brings out the folder.
ANDREA: (Foreign language spoken)
NAVARRO: It's a binder and inside it has 34 pages. First, she says, you have to apply online. Then you need to get all of the documents together, get them certified, in some cases translated, make three copies to present to the bank. Among the papers she has to provide, her class schedule officially translated into Spanish, her mother's birth certificate, her school diploma certified, a letter explaining her reason for leaving the country and on and on.
It takes weeks to get the information together. And there is a limit to how many dollars she can apply for, and she won't know if she gets them until right before she travels. Many, if not most people, have their applications refused. So this is the situation. Because the government has set this really low price for the dollar, everyone who needs dollars wants to buy from the government.
But the government doesn't have enough dollars to go around because the demand for them at that low price is so high. Think about who wants them. Business people who are importing goods, students like Andrea who are traveling, pretty much anyone who is doing any business with the outside world, which drives everyone to the black market.
But in this secret illegal black market system, how do you determine what the price of the dollar really is? And this is where it gets really weird. Venezuela's entire economy, where people all over the country are buying and selling pegged to the dollar on the street, is determined though a murky website of uncertain provenance run out of Miami, pegged to what people are doing in a Columbian border town.
It's called DollarToday.com and it's had many incarnations over the years. Venezuelan economist Roberto Balsa teaches at the Catholic University in Caracas. He says the website makes its calculations by looking at what dollar reserves the government of Venezuela has and how much traders in the Colombian border city of Cucuta are trading dollars to bolivar is at.
ROBERTO BALSA: (Foreign language spoken)
NAVARRO: He says, what is so shocking is that this calculation should serve as a reference between people in Venezuela. He says this weak calculation is the result of the government's economic policy, the fact that people can't get the dollars they need at the official rate.
In response to that very problem, Venezuela's government has announced that it has launched the new official currency exchange system that will allow, it says, the market to determine the price of dollars. There have been several other attempts at this before and it's not yet clear how it will work, how many dollars will actually be available and at what price.
Still, the black market is taking notice, from a high of about 90, the street value of the dollar has plunged in anticipation of the new currency controls. Lourdes Garcia Navarro, NPR News.
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