Wealthiest Venezuelans' Swiftest Route to Afortune Hoarding

Awakened Nightmare: The Return of Venezuela's Black Market Madness

Late money, outdated tactics, and economic instability - welcome back to the dreadful dance with the Venezuelan black market exchange rate. After a calming period of stability, it's time to obsessively check parallel and official websites once more. The USD to Bolívar exchange rate, tinted with a mystical glow, torments people while their earnings dwindle.

This grim spectacle is nothing more than the hoary tricks of the Venezuelan bourgeoisie in action. Using their loyal methods of exploiting default subsidized dollars, they aim to rake in extra profits and enlarge their share of the economic pie. All this is happening under crushing sanctions, making the struggle steeper than ever.

Historical Exploitation

The supply of cheap, state-subsidized dollars has always been the main accumulation method for the Venezuelan bourgeoisie, enabling them to favor imports, set up commercial monopolies, and rule various sectors. They deserve their cheeky nickname "parasites."

In the early 2000s, the Chávez government introduced currency exchange controls to halt capital flight. Even though they implemented additional policies, the supply of dollars to the import-heavy private sector continued. Chávez himself lamented that the state's dollars were being stupidly given to the bourgeoisie[4].

As the economy took a downturn in the mid-2010s, a fringe black market rate surged along with collapsing crude prices, shrinking the supply of foreign currency. Desperate measures taken by authorities, such as byzantine tweaks of the forex system, created corruption opportunities and offered no solution for the gigantic gap between official and parallel rates.

In 2019, forex regulation was withdrawn as part of a set of liberal measures aimed at revitalizing the sanctions-ravaged economy. The Venezuelan Central Bank (BCV) was still responsible for setting the exchange rate but delegated the foreign currency operations to banks' exchange tables[3].

The latest return of the parallel-to-official gap demonstrates how business entities, both old and newcomers, can destabilize the economy further and raise profit margins.

The Ever-Growing Divide

Months of stability in the exchange rate brought calm and a beloved sense of normalcy. But that peace was shattered in July as speculators sniffed out uncertainty surrounding elections.

Since then, the gap between the official and black market rates has swollen to over 20 percent. The Venezuelan Central Bank has responded with its recent combination of supplying more foreign currency and slowly devaluing the official marker[3]. However, the parallel rate, an arbitrary average of arbitrary references, has continued to climb.

Imagine Juana who runs a food stall. Worrying about devaluation, she decides to shift the 5,000 Bolívares earned in a single day into the more stable USD. An experienced trader, Miguel, will buy her dollars at a rate of 1 USD-50 Bolívares, offering $100 for her Bolívares. The following morning, Miguel can buy more dollars at one of the exchange tables for 40 Bolívares, allowing him to spend his 5,000 Bolívares on $125. He just made a 25% profit in his sleep[3].

Beyond these quick schemes, there are other potential advantages for big-time players. For practical reasons, everyone now sets cost structures in USD. By using the black market rate, they can pass on the increased profit margins[5].

They can access foreign currency at the official (lower) rate, making imports cheaper. Other state-set expenses like fuel are also calculated at the official rate. Then the companies establish prices using the black market rate.

Squeezing the Many

Small businesses and retailers find themselves in a tough spot. They can persist with the BCV rate, suffering a temporary crunch, raise prices and risk lower sales, or operate under an unofficial (and illegal) hybrid cash USD-Bolívar pricing system.

Many small-scale business owners interviewed for this article voiced frustration over not knowing when and how much foreign currency the BCV supplies, suspecting that big fish and insiders get privileged access. They admitted to spending hours frantically clicking to secure a USD purchase, fearing further erosion of their proceeds, and hence resort to black market dealers selling dollars (or a cryptocurrency equivalent)[1].

The majority of Venezuelans face no such dilemma. The Maduro government attempted to address this when it pegged non-wage bonuses to the dollar. However, these are paid in Bolívares using the official exchange rate, leaving people's lives at least 20 percent more costly[5].

Real wages, pensions, and labor benefits constitute such a tiny fraction of incomes that they are set in Bolívares and continue to get devalued.

Proposed Solutions

Chavista economists such as Tony Boza, Pasqualina Curcio, and Juan Carlos Valdez suggested a wide "indexation" of the economy linked to an inflation marker. Their plan envisions leveraging the ruling party's grassroots presence to continuously monitor prices and update incomes, savings, budgets, and more in real-time, working to eliminate immediate speculative activities[5].

Wasted Efforts

Liberal economists usually attribute the rise of the black market dollar to a shortage of foreign currency supply and an excess of liquidity. They argue that the government isn't providing enough dollars and is "printing money," leading to higher forex demand. However, those arguments are increasingly dubious.

Through October 2024, according to Banca y Negocios, the BCV has provided $4.3 billion into the exchange tables, a 16% increase compared to the same period in 2023[5]. Moreover, oil giant Chevron is also reportedly offering foreign currency into the exchange system, albeit with little information available[3].

Considering these figures, it’s essential to understand their significance. The Central Bank has, on occasion, injected a whopping $180 million into the exchange tables in a single day[3]. For comparison, the national "popular consultations" take place in 4,500 communal circuits, four times a year, and serve the purpose of allowing communities to vote on state-funded projects, with $10,000 awarded per project[6]. The annual amount of these consultations totals $180 million[6].

Obviously, in the case of forex operations, the BCV is exchanging money, not simply handing it over. This gets us to the second point. If the argument of insufficient supply is questionable, the liquidity one is outright false[5].

If the Central Bank has provided a total of $4.3 billion over 10 months, multiplying the monthly amounts by the average (official) exchange rate, we calculate the Central Bank received 159 billion Bolívares in return. Nevertheless, statistics from the financial entity show that over this period, liquidity (M2) has only grown by 78 billion Bolívares.

That means authorities have sterilized around half of the Bolívares received, intentionally removing them from circulation instead of turning them into wages or bonuses for the Venezuelan people [5].

The Challenge of Sanctions

Faced with harsh sanctions affecting the oil sector and locking Venezuela out of financial markets, the Maduro government opted for a pragmatic, orthodox approach to stabilize and breath life into the economy.

This approach focuses on taming inflation through reduced spending, wages, and nearly frozen credit, along with increasing incentives for private sector investment, including tax breaks, asset concessions, and deregulation. The removal of currency exchange controls was one such measure[5].

Now, the Venezuelan government has a tricky mission - to lower the parallel market's pressure without triggering a new inflationary spiral, especially with inflation recording decade-low values. Business leaders, historically antagonistic toward the Bolivarian Process, have grown confident that the executive's actions will favor their interests, be it plainly devaluing the currency or developing new, profit-boosting schemes[4].

The question remains whether the administration will simply surrender and increase the burden on the majority to maintain "economic peace," or resist this emboldened bourgeoisie. As renowned chess grandmaster Aron Nimzowitch once said, "The threat is stronger than the execution." In this case, Venezuelan authorities could theoretically avoid reintroducing full-fledged regulation but still instill fear among speculators and economically powerful actors[4].

When the Tareck El Aissami scandal resurfaced earlier this year, one of the allegations was that his group was manipulating the parallel exchange rate using a private bank (Bancamiga)[7]. Such operations should be tackled immediately by central banks and other regulatory bodies. They could also crack down on private actors selling USD at the black market price.

Venezuela's battered economy offers no simple solutions and no shortcuts to victory. The Maduro government succeeded in turning traditionally hostile business sectors against their regime-change agenda. Sanctions were causing them pain as well. But the final truth remains: bourgeois tigers never change their greedy stripes[4].

The views expressed in this article are the author's own and do not necessarily reflect those of the Venezuelanalysis editorial staff.

Enrichment Data:Venezuela's black market exchange rate dynamics and government responses are deeply connected to broader economic volatility. Here's an analysis of the underlying mechanisms:

Bourgeoisie Profit Mechanisms:
Arbitrage Opportunities: Import-dependent businesses take advantage of the gap between the government-mandated rate and the parallel market rate to make massive profits[1][2].
Price Manipulation: Sectors with dollar reserves set prices based on black market rates, passing hyperinflation costs to consumers while retaining profits[1][5].
Informal Dollarization: Many retailers and service providers increasingly price goods and services in dollars, marginalizing businesses reliant on Bolívares[1][5].
Government Countermeasures:
Enforcement Actions: Inspections, fines, temporary closures, license revocations, and arrests for non-compliance[1].
Currency Controls: Artificially low official rates, limited dollar allocations leading to scarcity, and strict regulation of forex operations[2][5].
Political Narrative: Framing black market activity as "economic warfare" to justify repressive measures[1][2].
Outcome: These measures have failed to curb inflation, stabilize the exchange rate, and restore public trust, resulting in a black market remaining the de facto benchmark for economic transactions[1][2][5].

Despite the Venezuelan Central Bank's recent efforts to close the gap between the official and black market exchange rates, businesses, both old and new, continue to exploit this divide to destabilize the economy and increase their profit margins.
In the current economic climate, small businesses and retailers in Venezuela find themselves in a difficult position due to the unpredictable supply of foreign currency and the preference for USD cost structures, leading many to resort to black market dealers for their currency needs.
Critics argue that the Venezuelan Central Bank has wasted its efforts in trying to control the black market, as it has provided substantial amounts of foreign currency into the exchange tables but has intentionally sterilized around half of the Bolívares received, removing them from circulation instead of turning them into wages or bonuses for the Venezuelan people.