Bitcoin and the 'Currency Wars': Venezuela formally devalues the Bolivar by 32%

[cypherdoc]

Currency de-valuation means de-valued relative to other currencies. It doesn't affect people who deal only in that currency beyond the price of imports going up.

That doesn't sound quite right. Taking the idea to its logical conclusion, if there was a single one-world currency its issuer could simply print trillions of it every day and it wouldn't affect the people one bit because they're all inside the currency bubble and there are no imports.

Devaluation can also mean relative to commodities, in which case you can argue that since marginal productivity stays the same in real terms wages would stay the same in real terms, and so it basically would be equivalent to a tax on savings plus partial debt jubilee. In reality, it's usually somewhere in between the two scenarios.

Mike is incorrect b/c he doesn't take into account how ppl who have control of the devaluation process (the Fed and banksters) take advantage of the printing press for their own gains at the expense of others who are forced to use that same currency.  b/c they have unfair knowledge as to when, to what extent the QE's take place, as well as first access to the free money, the devaluation process is unfair to non financial sectors and creates distortions in risk assets (stocks, bonds).  this knowledge comes from the fact that they know the Fed will always be there to bail them out.  only recently, with the advent of the internet and communication, has some of the populace caught on to these shenanigans.  to a conservative, rational thinking investor, these acts would appear mind boggling.

all you have to do is look at the suppression of Libor as just one example.  the major intl banks artificially suppressed interest rates to take advantage of those who correctly reasoned that the at risk assets were overvalued and therefore sold or shorted these assets to protect themselves.  but by further driving up the value of these risky debt assets with the continued suppression of Libor interest rates via currency devaluations they created heretofor unimaginable distortions in the prices of these dodgy asset. they thus pushed losses onto other parties instead of taking them themselves.  they made huge amounts doing this.

there are numerous examples where this is being done which is why you're seeing ppl dive into Bitcoin.

[Bicknellski]

Plans in Indonesia to knock off 000 on the end of our money.

100,000 Rp would be 100 Rp.

Current Exchange of RP to USD is 9700:1.

[Zangelbert Bingledack]

Currency de-valuation means de-valued relative to other currencies. It doesn't affect people who deal only in that currency beyond the price of imports going up.

That doesn't sound quite right. Taking the idea to its logical conclusion, if there was a single one-world currency its issuer could simply print trillions of it every day and it wouldn't affect the people one bit because they're all inside the currency bubble and there are no imports.

Devaluation can also mean relative to commodities, in which case you can argue that since marginal productivity stays the same in real terms wages would stay the same in real terms, and so it basically would be equivalent to a tax on savings plus partial debt jubilee. In reality, it's usually somewhere in between the two scenarios.

If currency devaluation meant that an angel went around and simply doubled the amount of money in everybody's wallet and bank account - all at once - then Mike would be correct. Everyone would have twice as much money, but the price of everything would also double immediately.

However, this is not what happens. The newly issued money does not flow into everyone's hands at the same time: the government contractors get it first and then it ripples through the economy until finally the wage-earners get their wages raised. Meanwhile the price of everything has nearly doubled. This might take two years, during which time the everyman (and especially the retiree on a fixed income) is screwed unless he has his savings in hard assets (gold, bitcoins, land, etc.).

The disparate effects of this non-homogeneous distribution of newly minted cash are called Cantillon effects: http://www.economictheories.org/2008/08/effect-of-changes-in-money.html?m=1

[xxjs]

Plans in Indonesia to knock off 000 on the end of our money.

100,000 Rp would be 100 Rp.

Current Exchange of RP to USD is 9700:1.

This is a demonstration of the fact that the money unit is not interesting. Mises once said that the money supply is always 1. *)

It is not a devaluation, but previous devaluations have made the unit impractical.

Interesting news, anyway.

*) We know that it is 21 million. What a dick

[btcven]

Plans in Indonesia to knock off 000 on the end of our money.

100,000 Rp would be 100 Rp.

Current Exchange of RP to USD is 9700:1.

This happened years ago in Venezuela too, but that is just psychological. Those 000 means nothing, just easier to tell, but equally confusing for locals.

[Mike Hearn]

You guys are mixing up inflation with devaluation. From Wikipedia, ‘Devaluation’ means official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency."

The Bolivar has a fixed exchange rate mandated by the government. Devaluation refers to a change in that rate. Naturally there is also a black market rate and that behaves as you describe.

[Rob E]

So what does this 32% devaluation mean for the country. 32%. That's a lot.

[Coinapult]

32% less Bitcoin! 

So what does this 32% devaluation mean for the country. 32%. That's a lot.

[btcven]

You guys are mixing up inflation with devaluation. From Wikipedia, ‘Devaluation’ means official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency."

The Bolivar has a fixed exchange rate mandated by the government. Devaluation refers to a change in that rate. Naturally there is also a black market rate and that behaves as you describe.

Devaluation of the Bolívar means that all the products offered inside Venezuela that are imported by merchants (in this country it is more than 80% of the products I think) will be sold in a higher price to afford the loss that this devaluation makes merchants suffer.

So it will cause the same results as inflation. Because people are receiving the same income and products are now more expensive.

[cypherdoc]

You guys are mixing up inflation with devaluation. From Wikipedia, ‘Devaluation’ means official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency."

The Bolivar has a fixed exchange rate mandated by the government. Devaluation refers to a change in that rate. Naturally there is also a black market rate and that behaves as you describe.

"“The big winner ends up being the state,” said Asdrúbal Oliveros, an economist at the Caracas-based consultancy Ecoanalitica. The move will relieve pressure on a fiscal deficit variously estimated between 7 and 15 per cent of gross domestic product, by increasing the state’s net revenues by almost 4 per cent of GDP, or $13bn at the new exchange rate, according to Mr Oliveros.
The devaluation also cuts the dollar value of domestic debt from $42.9bn to $29.3bn, leading analysts to expect an increase in prices of Venezuela’s foreign debt.

But while the government gains, most Venezuelans lose out, with Ecoanalitica estimating an 8 per cent fall in consumers’ purchasing power. Until the government next decrees an increase in minimum wages, the relative value of workers’ salaries will fall."

http://www.ft.com/cms/s/0/12e9f32e-739e-11e2-9e92-00144feabdc0.html#axzz2Kc3a6XGj

[Coinapult]

Venezuelan devaluation sparks panic buying

By Benedict Mander
Financial Times, London
Sunday, February 10, 2013

http://www.ft.com/intl/cms/s/0/12e9f32e-739e-11e2-9e92-00144feabdc0.html

CARACAS, Venezuela -- Panic buyers thronged Venezuelan shops over the carnival weekend after the government of Hugo Chavez announced a surprise devaluation that analysts said was overdue but would only partly right the listing economy.

Domestic appliances such as fridges and cookers were in particularly high demand as Venezuelans snapped up goods imported at the now-defunct exchange rate of 4.3 bolívars per dollar. From now on they will be imported at 6.3 bolívars per dollar.

Opposition politicians seized on what is Venezuela's fifth devaluation since strict currency controls were introduced in 2003, criticising the socialist government for springing an International Monetary Fund-style adjustment package on the country and quietly announcing it on Friday while people headed for the beach over the holiday.

Although Chavez was re-elected last October after consistently warning during his campaign that an opposition government would implement a "neoliberal package," officials say he ordered the devaluation -- from his hospital bed in Cuba, where he is recovering after a cancer operation two months ago.
The move represents the biggest challenge yet for the country's vice president, Nicolas Maduro, who has been in charge since Mr Chavez left for Cuba and who many expect to succeed the socialist leader if he remains too ill to continue in power. Mr Maduro defended the devaluation as an effort to strengthen the economy by optimising revenues while protecting the currency from "speculative attacks."

Critics say that although the exchange rate adjustment was essential to correct growing distortions in the economy, it did not go far enough, as the currency remains overvalued. It will therefore fail to solve the fundamental problem that the demand for dollars will remain far greater than the amount the government is likely to supply, they argue.

"Either the government burns up huge quantities" of its foreign currency reserves "handing out cheap dollars or there will be shortages," said Luis Vicente Leon, a pollster and economist at Datanalisis.

Local economists estimate that the "equilibrium" exchange rate, at which foreign currency is no longer relatively cheap for Venezuelans, is about nine bolívars to the dollar.

"The big winner ends up being the state," said Asdrúbal Oliveros, an economist at the Caracas-based consultancy Ecoanalitica. The move will relieve pressure on a fiscal deficit variously estimated between 7 and 15 per cent of gross domestic product by increasing the state's net revenues by almost 4 per cent of GDP, or $13 billion at the new exchange rate, according to Mr Oliveros.

The devaluation also cuts the dollar value of domestic debt from $42.9 billion to $29.3 billion, leading analysts to expect an increase in prices of Venezuela's foreign debt.

But while the government gains, most Venezuelans lose out, with Ecoanalitica estimating an 8 per cent fall in consumers' purchasing power. Until the government next decrees an increase in minimum wages, the relative value of workers' salaries will fall.

"Those most affected, apart from consumers, are the multinational companies that couldn't repatriate capital, and they will end up losing from one day to the next 46.5 per cent of their funds accumulated in bolívars," said Mr Oliveros.

Shares in companies with Venezuelan operations, including Colgate-Palmolive and Avon, fell on the announcement.

Mr Oliveros added that the devaluation was also likely to spur inflation, which at more than 20 per cent is one of the highest in the world, since more than a third of the goods consumed by Venezuelans are imported, while around half of locally produced goods rely on imports for their production.

Although, in theory, exporting companies benefit from a more competitive exchange rate, Venezuela exports very little apart from oil, which accounts for around 94 per cent of export revenues.

Moreover, economists point out that domestic industry is unlikely to benefit much from the devaluation because of hostile relations between the government and the private sector, with expropriations often not compensated, as well as a web of economic controls.

[Zangelbert Bingledack]

You guys are mixing up inflation with devaluation. From Wikipedia, ‘Devaluation’ means official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency."

The Bolivar has a fixed exchange rate mandated by the government. Devaluation refers to a change in that rate. Naturally there is also a black market rate and that behaves as you describe.

Hmm, I stand corrected. I've always heard monetary inflation and currency devaluation used interchangeably. Never knew it had this meaning.

[xxjs]

Plans in Indonesia to knock off 000 on the end of our money.

100,000 Rp would be 100 Rp.

Current Exchange of RP to USD is 9700:1.

This happened years ago in Venezuela too, but that is just psychological. Those 000 means nothing, just easier to tell, but equally confusing for locals.

We will go the other way

Next year millibitcoins will be listen in USD

and the other way again

Next year USD will be listed in millibitcoins

[Slackware1995]

So basically, if I lived in Venezuela, and had 100K Bolivars student debt, it would suddenly be worth 32% less ? Damn.. I would be so happy.

Your income would also be in Bolivars I guess ?

So, say you had 100K of bolivar student debt, and you had a monthly wage of 3K  bolivars, whereas 1K bolivars each month was directed to pay on the student loan.

True, when the currency is devalued 32%, you apperently will have a debt that is worth 32% less, but your bolivar income will also be reduced at the same rate, so you're basically back to square one. It's not like the company were you work will suddenly give you a 32% salary increase.

So, the only way you would 'win' was if you had money in another currency, and then traded it for bolivars to pay off your debt.

Likewise, if you had saved up for buying a house, perhaps used years for this, you're about to do a purchase, then all of a sudden prices rise because the Bolivar is devalued, and you must use 2 more years to get your house, and who knows if the currency will not be devalued again.

I would appreciate an intelligent discussion, not monkey-talk. Thanks.

That sounds good, except now your food costs 32% more, fuel 32% more, rent 32% more.. basically everything is now 32% more, except your paycheck.

[btcven]

So basically, if I lived in Venezuela, and had 100K Bolivars student debt, it would suddenly be worth 32% less ? Damn.. I would be so happy.

Your income would also be in Bolivars I guess ?

So, say you had 100K of bolivar student debt, and you had a monthly wage of 3K  bolivars, whereas 1K bolivars each month was directed to pay on the student loan.

True, when the currency is devalued 32%, you apperently will have a debt that is worth 32% less, but your bolivar income will also be reduced at the same rate, so you're basically back to square one. It's not like the company were you work will suddenly give you a 32% salary increase.

So, the only way you would 'win' was if you had money in another currency, and then traded it for bolivars to pay off your debt.

Likewise, if you had saved up for buying a house, perhaps used years for this, you're about to do a purchase, then all of a sudden prices rise because the Bolivar is devalued, and you must use 2 more years to get your house, and who knows if the currency will not be devalued again.

I would appreciate an intelligent discussion, not monkey-talk. Thanks.

That sounds good, except now your food costs 32% more, fuel 32% more, rent 32% more.. basically everything is now 32% more, except your paycheck.

Correct. Fuel will cost even more indeed, the gov (Chávez, as they call it) will increase gasoline prices for the first time in more than a decade to be able to reduce the deficit. People say that it will cause a new "Caracaso". Riots, clashes and deaths basically.

You can devaluate Venezuelans' money, you can keep them away from eating chicken, sugar or even Harina PAN (used to make Arepas); but what you cannot do is increase fuel prices! Venezuelans love cheap fuel, even more than alcoholic drinks.

[cypherdoc]

You guys are mixing up inflation with devaluation. From Wikipedia, ‘Devaluation’ means official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency."

The Bolivar has a fixed exchange rate mandated by the government. Devaluation refers to a change in that rate. Naturally there is also a black market rate and that behaves as you describe.

"“The big winner ends up being the state,” said Asdrúbal Oliveros, an economist at the Caracas-based consultancy Ecoanalitica. The move will relieve pressure on a fiscal deficit variously estimated between 7 and 15 per cent of gross domestic product, by increasing the state’s net revenues by almost 4 per cent of GDP, or $13bn at the new exchange rate, according to Mr Oliveros.
The devaluation also cuts the dollar value of domestic debt from $42.9bn to $29.3bn, leading analysts to expect an increase in prices of Venezuela’s foreign debt.

But while the government gains, most Venezuelans lose out, with Ecoanalitica estimating an 8 per cent fall in consumers’ purchasing power. Until the government next decrees an increase in minimum wages, the relative value of workers’ salaries will fall."

http://www.ft.com/cms/s/0/12e9f32e-739e-11e2-9e92-00144feabdc0.html#axzz2Kc3a6XGj

the other thing i wanted to say about this is that do you really believe the politicians who were involved in this devaluation, even if it was just Chavez himself, didn't front run this?  i mean come on, human greed shows no boundaries and i assume he positioned himself well before this formally was announced.  Chavez has a great history of stealing and he stole my whole investment in Crystallex many years ago by nationalizing the gold mine.

THIS is what i'm talking about.  anyone or any entity that is given control of the money supply will pervert and manipulate its supply to their own advantage whether you call it a devaluation or just plain inflation.

i mean, look at our own politicians.  did you know they are allowed to trade/frontrun their own legislation?  that is just plain ridiculous.

[fabrizziop]

You guys are mixing up inflation with devaluation. From Wikipedia, ‘Devaluation’ means official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency."

The Bolivar has a fixed exchange rate mandated by the government. Devaluation refers to a change in that rate. Naturally there is also a black market rate and that behaves as you describe.

"“The big winner ends up being the state,” said Asdrúbal Oliveros, an economist at the Caracas-based consultancy Ecoanalitica. The move will relieve pressure on a fiscal deficit variously estimated between 7 and 15 per cent of gross domestic product, by increasing the state’s net revenues by almost 4 per cent of GDP, or $13bn at the new exchange rate, according to Mr Oliveros.
The devaluation also cuts the dollar value of domestic debt from $42.9bn to $29.3bn, leading analysts to expect an increase in prices of Venezuela’s foreign debt.

But while the government gains, most Venezuelans lose out, with Ecoanalitica estimating an 8 per cent fall in consumers’ purchasing power. Until the government next decrees an increase in minimum wages, the relative value of workers’ salaries will fall."

http://www.ft.com/cms/s/0/12e9f32e-739e-11e2-9e92-00144feabdc0.html#axzz2Kc3a6XGj

the other thing i wanted to say about this is that do you really believe the politicians who were involved in this devaluation, even if it was just Chavez himself, didn't front run this?  i mean come on, human greed shows no boundaries and i assume he positioned himself well before this formally was announced.  Chavez has a great history of stealing and he stole my whole investment in Crystallex many years ago by nationalizing the gold mine.

THIS is what i'm talking about.  anyone or any entity that is given control of the money supply will pervert and manipulate its supply to their own advantage whether you call it a devaluation or just plain inflation.

i mean, look at our own politicians.  did you know they are allowed to trade/frontrun their own legislation?  that is just plain ridiculous.

I'm from Venezuela, the worst part is that Chavez' presidential period was due for renewal on 10 JAN 2013 as he won the elections, but since about 10 dic 2012 he's on medical leave to Cuba receiving cancer treatment, so some Venezuelans think that there's a de facto government since jan 10. There's a lot of FUD going here.

[mobile4ever]

Why did that happen when they just got a lot of their gold shipped from Europe to Venezuela?

[cypherdoc]

here's another reason why these devaluations hurt ordinary Venezuelans:

"Government price controls on staple foods are so low that producers cannot make a profit, they say, and farms and businesses hesitate to invest in crops or machinery, or stockpile inventories, for fear of expropriations."

http://www.acting-man.com/?p=21697#more-21697

[Vladimir]

Bolivar cannot carry double