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

[Coinapult]

http://www.bloomberg.com/news/2013-02-08/venezuela-devalues-currency-from-33-to-6-30-bolivars-per-dollar.html

If you are a Venezuelan Bitcoin user, I would love to speak with you for a radio and blog interview. I am hoping to put together a piece regarding Bitcoin's role in the ongoing 'Currency Wars'.

Gabe Sukenik
Coinapult.com

[Herodes]

So basically, if I lived in Venezuela, and had 100K Bolivars on my account, they were suddenly worth 32% less ? Damn.. I would be so mad.

[Offthechain]

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.

[Herodes]

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.

[Spaceman_Spiff]

Paycheck should go up as well (not instantly of course).
People with net positive position in currency will lose, people with debt will profit from the devaluation.
I am ignoring any effect this has on the economy for simplicity's sake.

[cypherdoc]

Paycheck should go up as well (not instantly of course).
People with net positive position in currency will lose, people with debt will profit from the devaluation.
I am ignoring any effect this has on the economy for simplicity's sake.

if you live in America, the only paychecks that have gone up are for those in the banking industry.  record bonuses over the last 4 yrs.  too bad everyone else's paychecks have gone down.

[Mike Hearn]

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.

[Spaceman_Spiff]

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.

I would guess the effects of import prices and export volume are not neglible for most economies nowadays.

[Spaceman_Spiff]

Paycheck should go up as well (not instantly of course).
People with net positive position in currency will lose, people with debt will profit from the devaluation.
I am ignoring any effect this has on the economy for simplicity's sake.

if you live in America, the only paychecks that have gone up are for those in the banking industry.  record bonuses over the last 4 yrs.  too bad everyone else's paychecks have gone down.

Ok, but because of a worsening economy, paychecks would probably have gone down nominally (and/or more unemployment in the short run) without money printing.

[Herodes]

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.

Wikipedia says:

Devaluation in modern monetary policy is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged. ‘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.

So what you're saying is that goods and services, for instance buying property or going to a massage will be at the same price as it was before in Venezuela, so same costs for the locals, but much less expensive for foreigners ? Isn't it so that a devaluation makes your power to buy goods and services less ?

[Herodes]

Ok, but because of a worsening economy, paychecks would probably have gone down nominally (and/or more unemployment in the short run) without money printing.

It's funny, because a big airline company in Norway recently claimed they were going out of business unless all employees took a wage cut. After the cuts were done, the management awarded themselves bonuses, pointed nose to the rest of the good people and said: Fooled ya! There wasn't really any eminent crisis.

[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.

Cantillon effects.

[cypherdoc]

Paycheck should go up as well (not instantly of course).
People with net positive position in currency will lose, people with debt will profit from the devaluation.
I am ignoring any effect this has on the economy for simplicity's sake.

if you live in America, the only paychecks that have gone up are for those in the banking industry.  record bonuses over the last 4 yrs.  too bad everyone else's paychecks have gone down.

Ok, but because of a worsening economy, paychecks would probably have gone down nominally (and/or more unemployment in the short run) without money printing.

i think you've been hoodwinked into buying this progaganda.

no doubt a recession/depression would be a downer for a couple of years but then we'd come out of it.  look at the recession of 1921 when the Fed did not intervene.  getting rid of the big banks wouldn't hurt the economy in the long run at all i say.  right now, they are just a bunch of parasites on the rest of us real wealth producers but that game is running out.

what do they say when you suspect there are shenanigans going on?  "look where the money goes".  and right now there is an enormous tax applied to the non financial sector to prop up the large financial bonuses of the bankers.  there is SO MUCH evidence to support this.  it's everywhere you look.  they don't even bother to hide it any more otherwise we could call them liars everyday.

back in 2009 there was alot of honest money, including mine, waiting on the sidelines to scoop up these bad assets at fair market value.  the Fed prevented that from happening.  we had a good chance to clear the markets, get rid of the dredge, and move those assets into more efficient, more honest hands.   instead, Bernanke/Obama saddles America with a doubling of the national debt in just 4 yrs, an explosion of the Feds balance sheet from $800B to >$3T now.  we abandon Federal budget accounting and we decide to mark to myth debt assets.  we abandon the rule of law and no one gets punished for wiping trillions of wealth of average ppls balance sheets.  this is unprecedented.  most of the house buying that has happened since has gone into the hands of banks and hedge funds, not working households.  just how sustainable and long lasting is that?  answer:  its not.  they either dump at the first profitable benchmark they set or they are forced to dump in an escalating downward spiral which in the end means that those bad loans will get dumped onto the taxpayer once again.

how do i know that this is non-sustaining?  look at Europe.  eventually the debt payments catch up to the ability to service that debt.  if incomes across America were going up across the board at the same rate, we'd have a chance.  if the average American were allowed to go to the Fed discount window and borrow at 0%, you'd have a point.  if the average American were allowed to dump their bad mortgages onto the backs of the collective taxpayers like the banks do, then i'd say ok.  but that's not how the system works.  this is WHY you see income disparity levels never seen since 1929 just before the Great Depression.

the debt NEVER disappears and the debasing NEVER stops.  that's the problem.

[xxjs]

"Giordani said that while the government has sufficient revenue, devaluing will encourage more efficiency in the economy"

yeah, right.

[btcven]

http://www.bloomberg.com/news/2013-02-08/venezuela-devalues-currency-from-33-to-6-30-bolivars-per-dollar.html

If you are a Venezuelan Bitcoin user, I would love to speak with you for a radio and blog interview. I am hoping to put together a piece regarding Bitcoin's role in the ongoing 'Currency Wars'.

Gabe Sukenik
Coinapult.com

I run http://bitcoinvenezuela.com I'm venezuelan and living in Spain.

[Spaceman_Spiff]

Paycheck should go up as well (not instantly of course).
People with net positive position in currency will lose, people with debt will profit from the devaluation.
I am ignoring any effect this has on the economy for simplicity's sake.

if you live in America, the only paychecks that have gone up are for those in the banking industry.  record bonuses over the last 4 yrs.  too bad everyone else's paychecks have gone down.

Ok, but because of a worsening economy, paychecks would probably have gone down nominally (and/or more unemployment in the short run) without money printing.

i think you've been hoodwinked into buying this progaganda.

no doubt a recession/depression would be a downer for a couple of years but then we'd come out of it.  look at the recession of 1921 when the Fed did not intervene.  getting rid of the big banks wouldn't hurt the economy in the long run at all i say.  right now, they are just a bunch of parasites on the rest of us real wealth producers but that game is running out.

what do they say when you suspect there are shenanigans going on?  "look where the money goes".  and right now there is an enormous tax applied to the non financial sector to prop up the large financial bonuses of the bankers.  there is SO MUCH evidence to support this.  it's everywhere you look.  they don't even bother to hide it any more otherwise we could call them liars everyday.

back in 2009 there was alot of honest money, including mine, waiting on the sidelines to scoop up these bad assets at fair market value.  the Fed prevented that from happening.  we had a good chance to clear the markets, get rid of the dredge, and move those assets into more efficient, more honest hands.   instead, Bernanke/Obama saddles America with a doubling of the national debt in just 4 yrs, an explosion of the Feds balance sheet from $800B to >$3T now.  we abandon Federal budget accounting and we decide to mark to myth debt assets.  we abandon the rule of law and no one gets punished for wiping trillions of wealth of average ppls balance sheets.  this is unprecedented.  most of the house buying that has happened since has gone into the hands of banks and hedge funds, not working households.  just how sustainable and long lasting is that?  answer:  its not.  they either dump at the first profitable benchmark they set or they are forced to dump in an escalating downward spiral which in the end means that those bad loans will get dumped onto the taxpayer once again.

how do i know that this is non-sustaining?  look at Europe.  eventually the debt payments catch up to the ability to service that debt.  if incomes across America were going up across the board at the same rate, we'd have a chance.  if the average American were allowed to go to the Fed discount window and borrow at 0%, you'd have a point.  if the average American were allowed to dump their bad mortgages onto the backs of the collective taxpayers like the banks do, then i'd say ok.  but that's not how the system works.  this is WHY you see income disparity levels never seen since 1929 just before the Great Depression.

the debt NEVER disappears and the debasing NEVER stops.  that's the problem.

Haha Cypher, do you think I would be on this bitcoin forum if I had been hoodwinked into thinking money-printing is good?

I was merely talking about short-term consequences, not long-term effects.
I absolutely agree with your post.  For sure the big banks are getting an unfair advantage nowadays.  0% borrowing and bailouts with taxpayer money and all the while getting big bonusses is f*cked up morally and only hurts the economy long-term.

I was merely pointing out that in a stable economy, paychecks should roughly follow the overall inflation or deflation rate.  (which is a simplification of course, given that they won't catch up immediately, and very long-term you have other effects such as automatization / productivity gains etc. going on). 

[FreeMoney]

So basically, if I lived in Venezuela, and had 100K Bolivars on my account, they were suddenly worth 32% less ? Damn.. I would be so mad.

On the bright side that is still way above fundamental value.

[Vitalik Buterin]

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.

[Seth Otterstad]

This doesn't actually matter very much.  Here is a graph of the black market value of the Argentine Peso vs the official government rate:

http://www.ambito.com/economia/mercados/dolar.asp

Fun fact:  it was at 6.5 in december, and 5.5 in june.

All that happens when they "officially" raise the value is they bring it more in line with what it's actually trading at.  No one uses the official exchange rates of currencies that are not freely convertible.

[Coinapult]

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.

Bingo. Bitcoin and Gold both held their purchasing power in spite of Venezuela's efforts to fight their Currency War. It affects Bolivar holders when they lose 32% of their purchasing power. A Bitcoin or Precious Metal owner would still have 100% of his metal/Bitcoin-denominated purchasing power.