But since that peak, the VEF has reversed course and has moved back pretty sharply, with today’s parallel rate at 4.0 the bid and 4.2 the ask. That’s one helluva downward move, but strangely enough the good news hasn’t been picked up much by the English speaking press.
Amazingly, press coverage was much more intense when the VEF parallel was losing all that ground against the dollar last year. Headlines on Venezuela with words like falls, plummets and loser were common. Comparisons with the Zimbabwean dollar made it to (supposedly) serious newswire services, and still do the rounds of the less informed blogchatterers today. The Miami Herald and the stupendously biased media inside Venezuela had its own little field day.
So what happened? What stopped the prophets-of-doom merchants in their tracks and forced them to change tack and make up stories about Chávez and cocaine trafficking or Chávez and terrorism or Chávez and babyeating (joke…I think) instead?
Well, basically the Venezuelan money guys (the economy ministry, the central bank etc) have started implementing sensible monetary and fiscal policies. This chart shows the big change; it shows M2 money supply in U$ dollars.
This last chart shows how badly the Venezuelan reserves have sunk since that crazed Chávez got his sweaty palms on power….I mean, just look at how that line tails off…so irresponsible…spending a whole country’s reserves like that.
Yes, as we can see Venezuelan international currency reserves have climbed significantly through the period, from around the U$15Bn mark of 10 years ago to the U$30bn+ figures of today that also includes the U$8Bn or so Chávez siphoned off in early 2007 to pay for social program funding (see that quick dip there?…that was the withdrawal).
When it comes to forex rates for developing nations, the amount of reserves tucked away in the central bank is pretty important, as it gives a ballpark idea to how much each unit of local currency is worth. In Venezuela’s case, there’s currently 151.9 billion VEFs in circulation in the country. There’s U$31.7Bn in the Banco Central reserves. This means each dollar held by the state backs up 4.78VEFs*.
That the parallel rate came down from the highs of November isn’t so surprising, given the new dose of pragmatism recently seen (no more printing press mania), and the VEF moved back into the 4s range. It has also been helped along by another new policy, that of the bank selling reserve dollars directly to banks to cut down parallel market demand (you can see that in the last part of the currency reserves chart; so far this year reserves are down U$2.8Bn as the central bank buys up the VEFs and hands out the dollars). This has pushed the VEF past the reserve equilibrium and down to the 4.0 exchange of today. The forex might fluctuate round this point for a while, but the longer-term tendencies now are likely to be dictated by changes in reserves holdings and VEF M2 rates more than doom’n’gloom reporting. Venezuela has got its currency under control again, and a further outbreak of responsibility will see the country get on an economically firmer footing. The ball’s in your court now, guys………make those petrodollars work for you.
There’s plenty more to say about today’s Venezuela and its economy, and not all of it is good. But the thing that really pisses me off is how you only get to hear about the bad stuff in English, and anything that the country does well is never reported by western media. Tell it like it is, that’s what I say.