Black market foreign exchange: one more thing off the bucket list.
Venezuela’s fixed currency fixes nothing
Venezuela’s currency isn’t floating, like most. Instead the government ‘fixes’ the exchange rate with the US dollar, which means they can decide how much their currency is worth. It’s not surprising that they overvalue their own currency – that’s sort of the point – but the extent to which they do so is absurd.
At official exchange rates you get 6.3 Venezuelan Bolivars (VEF) for a US Dollar (USD). On the black market we got about ten times that: between 65 and 70 VEFs for a USD. We’ve since heard of people getting as much as 85.
Finding a back alley to change in
We avoided the risk of being ripped off trading at the border because we had some VEFs from a friend, but then struggled to find someone to change with later on. The people we talked to – hotel staff, taxi drivers etc. – acknowledged that you could change on the black market, but didn’t know how to do so. And they advised us to be very careful. It is, after all, illegal.
With a dwindling supply of VEFs, we arrived at a hostel that was more used to dealing with tourists. They hooked us up with a trader. He came and visited. We discussed price then he took our USD away and came back – two hours later – with a large pile of Venezuelan cash.
The world’s cheapest travel…
Cashed up we set out to investigate our purchasing power. Turns out Venezuela is the single cheapest place we have ever traveled. Cheaper than India. And better quality. For example we paid:
- About ten New Zealand dollars for a hotel room with air conditioning, TV, hot showers and breakfast included (novelties all).
- Less than one New Zealand dollar for a plate of spaghetti bolognese.
- Three New Zealand dollars for a bakery breakfast of two filled rolls, pizza, two orange juices and coffee. This surpassed the value of even the great Concorde Patisserie. Incidentally, the breakfast also featured vastly better bread, cheese and ham than Colombia.
As a rule, it was about eight to ten times cheaper to shop and travel in Venezuela than in New Zealand and three times cheaper than Colombia.
…at the expense of Venezuelans
What explains this massive difference? The fixed exchange rate only gets us so far. If we assume that Colombia has similar labour costs and other economic features to Venezuela, you might expect black market cash would make Venezuela about as cheap to travel in as Colombia. But it’s much cheaper. That’s because:
- There’s a really short supply of USD. The government doesn’t really have any, there’s limited trade and travelers in the country and USD is hard to get in.
- Of course Venezuelans still want to travel though the state isn’t wild about them doing so. Citizens have to get USD from the government, and they’re often refused.
- USD are useful for other reasons too. Many Venezuelans expect that their economy will collapse in the foreseeable future, and take their currency with it. Holding USD is like an insurance policy against that.
- Inflation is ridiculously high – as much as 50% per year. So saving is basically impossible in Venezuelan currency, and USD is a safer bet.
To put in another way the black market exchange rate doesn’t represent what a floating exchange rate would be. That’s really favorable to travelers but it’s terrible for Venezuelans. It limits their ability to save or invest and suffocates their opportunities to travel. Plus it means the cost of living if you’re paid in VEFs is incredibly high. That’s why Caracas is the most expensive city in the world for ex-pat living. There’s no doubt the absurdity of the currency situation is contributing to the current riots. We expect it will contribute to the downfall of the government too.