Messi and the ‘Dollarisation’ of the Venezuelan Economy

Barcelona FC could buy the entire Venezuela economy with just the release clause of Lionel Messi’s contract, claims economist Luis Salas.

By Luis Salas - Escritos desde la cuarentena
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With the release clause of Argentinean football player Lionel Messi's contract, Barcelona FC could dollarize the entire Venezuelan economy and it would still have about US $200 million left in the bank, argues Venezuelan economist Luis Salas. (Archive)
With the release clause of Argentinean football player Lionel Messi's contract, Barcelona FC could dollarize the entire Venezuelan economy and it would still have about US $200 million left in the bank, argues Venezuelan economist Luis Salas. (Archive)

According to the latest report from Venezuela’s Central Bank (August 28), the total monetary liquidity circulating in the country’s economy is equivalent to US $514,422,168.60. In the case of coins and banknotes, the entire circulating cash mass is equivalent to US $16,929,209.80.

In other words, if the government decided to definitively and officially dollarise the Venezuelan economy, just over US $514 million would suffice to trade all the bolivars into US dollars. Likewise, almost US $17 million would buy all the banknotes circulating.

This means that Barcelona Football Club could dollarise the entire Venezuelan economy with just the famous release clause of [Argentinean football player Lionel] Messi's contract and still have about US $200 million left in the bank.

Equally, if what Forbes magazine says is true about the fortune of the owner of Banesco [Colombo-Spanish bank based in Venezuela], he alone could dollarise Venezuela's economy 5.8 times over at its current value.

In per capita terms, and assuming a Venezuelan population of about 28 million people, we can say that every Venezuelan has a current monetary worth of US $18.30.

This means that, technically speaking, if such a dollarisation were to occur, each of us would be worth US $18.30, supposing that the total circulating liquid value of the economy were divided in equal parts.

Eight years ago...

If we did the same maths eight years ago, before the regressive loop in which we are immersed, the contrast is eloquent.

According to the World Bank, Venezuela's GDP in 2012 was about US $330 billion and monetary liquidity as a percentage of the GDP was 45.7 percent. Ergo, we are talking about a monetary mass equivalent to US $148 billion in 2012. In per capita terms, this means there were about US $5,285 circulating per person.

Of course, the figure may be slightly overestimated due to the exchange rate used by the World Bank but, give or take, that was the reality.

As for the percentage of monetary liquidity relative to the GDP, taking the official figures up to 2018 and CELAC’s estimate for 2019, we would currently have a GDP in the order of US $82 billion. This means that we are talking about a monetary mass in local currency of 1 percent of the current GDP and 287 times lower than in 2012.

In this case, the data may be underestimated by the opacity of official figures and the exchange rate used, but this estimate is not too far off from official data.

It is worth noting that in 2012 the level of monetary liquidity was 32 points below the level of a country such as Chile and 66 below the global average. This comment is for the consideration of closed-minded people who argue that [the problem lies in the] "excess monetary liquidity" and the "oil waste" of the Chavez era.

Dollarisation or de-bolivarisation?

In light of this dramatic fall in the mass of local currency, many will say that it has been replaced by a parallel liquidity in foreign currencies, among which the US dollar stands out.

Generally speaking, that's what is commonly known as dollarisation. However, this is a half-hearted and distorted truth, since the "substitution" of one currency mass for another is very precarious, to say the least.

Suppose that the current mass in foreign currencies (and above all dollars) adds up to the US $5 billion as some claim. That's US $175 per person, assuming that the entire economy is "working" with the number of dollars associated with each in 2012.

In reality, our economy is not being dollarised: the Venezuelan economy is rapidly de-bolivarising. In other words, it is running out of bolivars with which to operate. What we call "dollarisation" is a sub-optimal compensation for this de-bolivarisation.

Is the difference useful at all?

For some, the difference might seem irrelevant or an exercise in masochism that only adds anxiety to our already anxious economic reality. However, the difference between de-bolivarisation and dollarisation is far from just nominal.

Strictly speaking, this is because there is no replacement of bolivar for dollars, among other things. What has been happening is an accelerated and ruthless adjustment of the Venezuelan economy to the small number of dollars available, an issue which results in the brutal shrinking of the economy. The worst thing about this scenario is that the amount of dollars in circulation is not expected to increase either in the short, medium or long term.

Basically, this is because (legal) dollar sources in any non-US economy are three: exports, international loans, or foreign investment. Given the blockade [against Venezuela] and the woeful state of the national oil industry, it is clear that the first two avenues are closed. Partly for the same reason, but also because of the shrinking of the economy, the last route is not a solution unless we take into account purchases of public assets that are privatised at knock off prices, or private players who denationalise the economy.

This means, simply put, that the way the Venezuelan economy is going, not only will it not grow, but it will continue to shrink, or in the least worst case, it will stagnate in a sub-optimal state of precariousness.

Now if the opposite is assumed, that this is not dollarisation but de-bolivarisation, the response and its fate may be different, because bolivars (and even [the cryptocurrency] Petro, with all its ambiguity) and monetary policy do not depend on the US Federal Reserve but on the Venezuelan Central Bank in coordination with the government. But let-s face it, that means changing everything that's been said already and closing the book on this period.

Luis Salas Rodriguez is an economist and sociologist, as well as a lecturer and researcher at the Bolivarian University of Venezuela (UBV). He served as the minister of productive economy and economic vice president.

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

Translation by Paul Dobson for Venezuelanalysis.