The Venezuelan Bourgeoisie’s Surest Get-Rich-Quick Scheme

In recent weeks, a familiar monster has reawakened to haunt the Venezuelan people: the runaway black market exchange rate. 

After many months of currency stability, it is now back to checking parallel and official websites daily. The exchange rate between the US dollar (USD) and the Venezuelan bolívar (BsD) is bestowed a mythical dimension, forcing humans to helplessly watch it grow and grow while their incomes get eroded.

The reality is much simpler. This is just the Venezuelan bourgeoisie using one of their most tried and tested methods to squeeze more profits and claim an ever-bigger slice of the proverbial pie. And with the Venezuelan economy under deadly, wide-reaching sanctions, the challenges are greater than ever.

Historical accumulation

Historically, and through different iterations, the supply of cheap state-subsidized dollars (i.e. an overvalued bolívar) has been the prime accumulation mechanism for the Venezuelan bourgeoisie. In other words, it was a privileged access to the oil rent that favored imports and the establishment of commercial monopolies and oligopolies in virtually every major economic sector. The bourgeoisie’s “parasitic” label is more than earned.

In the early 2000s, the Chávez government introduced currency exchange controls to halt capital flight. Along with other policies, the goal was to use the rent to pay the “social debt.” Still, the supply of dollars to the import-heavy private sector continued, with Chávez at one point bemoaning that “we look like fools (“pendejos”) giving the state’s dollars to the bourgeoisie.”

An initially marginal black market rate soared with the economic downturn of the mid-2010s, when collapsed crude prices meant a dwindling supply of foreign currency. Authorities tried ever more byzantine tweaks of the forex system which offered plenty of avenues for corruption and no solution for the huge gap between official and parallel markers. 

In 2019, forex regulation was withdrawn altogether as part of a liberal set of measures aimed at revamping the sanctions-devastated economy. The Venezuelan Central Bank (BCV) remained responsible for setting the exchange rate but delegated the foreign currency operations to “exchange tables” run by the banks. 

The latest re-emergence of the parallel-to-official gap showcases the power of business sectors, both traditional and recently-emerged ones, to destabilize the economy further in their favor and raise profit margins.

Mind the gap

Months of relative exchange rate stability (see plots) meant stable prices and a highly welcomed sense of “normalcy” for the Venezuelan economy. But that began to change in July, as speculators pounced (as usual) on the uncertainty surrounding elections.

Since then, the gap between the official and black market rates has ballooned to over 20 percent. The Venezuelan Central Bank has responded with its usual recent combo of supplying more foreign currency and slowly devaluing the official marker. But the parallel rate, which is an arbitrary average of arbitrary references, with no relation whatsoever to transaction volumes, has continued to go up.

It is not hard to grasp how this exchange rate gap offers get-rich-quick prospects. Imagine Juana who runs a fast food stall. Fearing devaluation, she wants to change the 5,000 bolívars earned during the day into (more stable) dollars. A seasoned trader, Miguel, will sell her greenbacks at a rate of 1 USD-50 BsD, the black market price, so $100 for the 5,000 BsD. Then the next morning, the well-connected Miguel can go to one of the exchange tables selling 1 USD for 40 BsD, and with those 5,000 he will now buy $125. He has just made a 25% profit in his sleep.

But beyond these fast turnaround schemes, there are more potential benefits for big-time players. For practical reasons, everyone establishes cost structures in US dollars nowadays. And if the monopolistic actors use the black market rate, it then percolates downstream. Doing so simply means higher profit margins. They can access foreign currency at the official (lower) rate, making imports cheaper. Other state-set costs like fuel are also calculated at the official rate. Then the companies establish prices using the black market one.

Squeezing the majority

Smaller businesses and retailers are left with a conundrum. They can continue to operate with the BCV rate and accept a short-term squeeze, they can raise prices but risk lower sales. Some operate with an unofficial (and illegal) hybrid of charging one price if the customer pays in cash USD and another if it is in bolívars.

Several small-scale business owners surveyed for this article expressed frustration at not knowing when and how much foreign currency the BCV is supplying, suspecting that big fish and insiders get privileged access. They reported having to spend hours clicking and hoping that a purchase of USD would go through. As a result, fearing a further erosion of their proceeds, many resort to black market dealers selling greenbacks (or a cryptocurrency equivalent).

For the majority of the Venezuelan people there is no conundrum at all. Though the dollar effectively works as the overall accounting unit and circulates widely, very few actually earn USD in cash. The Maduro government attempted to address the issue when it pegged non-wage bonuses to the dollar. However, these are paid in bolívars using the official exchange rate, meaning life has gotten as much as 20 percent more expensive. 

As for actual salaries, pensions, and other labor benefits, which already represent a tiny fraction of incomes, they are set in bolívars and just get further devalued.

Chavista economists such as Tony Boza, Pasqualina Curcio and Juan Carlos Valdez proposed a broad “indexation” of the economy to an inflation marker. The idea included making use of the ruling party’s extensive grassroots presence to constantly monitor prices and update incomes, savings, budgets, etc in real-time. 

In detail, local activists would provide regular reports on the prices of food staples, medicines, transportation and more. A weighted average would then lead to a measure of inflation (e.g. prices rose by 0.5 percent) and all the wages, bank deposits, etc. would update by the same amount. Though the prospect is ambitious, and certainly inflation is not just an accounting issue, it would (in theory) do away with the immediate speculative activities.

Throwing money at the problem

Liberal economists usually pin the rise of the black market dollar on two factors: a shortage of foreign currency supply and an excess of liquidity. That is, the government not providing enough dollars while also “printing money” and leading to a higher forex demand. However, the arguments that were dubious to begin with are certainly outdated.

Through the end of October, according to Banca y Negocios, the BCV has provided $4.3 billion into the exchange tables. That is a 16 percent increase compared to the same period in 2023. Furthermore, it has been reported that Chevron is likewise supplying foreign currency into the exchange system, though details have been sparse.

It is important to put these figures in perspective. The Central Bank has, on two occasions, injected a whopping $180 million into the exchange tables in a single day. For comparison, the so-called national popular consultations take place in 4,500 communal circuits, four times a year, for communities to vote on state-funded projects, with $10,000 awarded per project. That total annual amount is $180 million.

Granted, in the case of forex operations the BCV is exchanging money, not simply handing it over. But this leads to the second point above. If the lack of supply argument is questionable, the liquidity one is outright falsifiable. 

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

This means authorities have sterilized around half of the bolívars received, deliberately removing them from circulation instead of turning them into wages/bonuses for the Venezuelan people. The Central Bank giveth the dollars and the Central Bank taketh away the bolívars.

The blockade challenges

Faced with crushing sanctions that, among other consequences, hamstring the all-important oil industry and lock Venezuela out of financial markets, the Maduro government chose a pragmatic, orthodox approach to try and stabilize and jumpstart the economy. 

On the one hand, this has meant an extreme focus on taming inflation via reduced spending and wages alongside nearly frozen credit. On the other, generating more and more incentives for private sector investment, including tax breaks, state asset concessions and de-regulation. The removal of currency exchange controls was one such measure.

So the Venezuelan government is now in the challenging position of lowering the parallel marker “pressure” without triggering a new inflationary spiral. Especially with inflation registering decade-low values. Business leaders who historically antagonized the Bolivarian Process have been in a boisterous mood. They now basically take for granted that the executive’s actions will favor their interests, be that plainly devaluing the currency or developing new, pro-corporate, compensation schemes. 

The question is whether the administration wants to simply cave and increase the load on the majority in order to preserve the “economic peace.” Or if there will be some kind of pushback against this emboldened bourgeoisie. Chess grandmaster Aron Nimzowitch coined the phrase “The threat is stronger than the execution.” In this case, Venezuelan authorities can avoid reintroducing full-fledged regulation (they clearly do not want to) but still instill a healthy dose of fear among speculators and economic heavyweights.

When the Tareck El Aissami scandal resurfaced earlier this year, one of the allegations was that his group was using a private bank (Bancamiga) to drive up the parallel exchange rate. This is the kind of operation that the Central Bank and other regulators should be able to crack down on immediately. Not to mention targeting private actors selling USD at the black market price.

Venezuela’s besieged economy offers no simple solutions and no shortcut exits. The Maduro government did successfully manage to turn the traditionally hostile business sectors away from their regime-change belligerence. After all, sanctions were hurting them as well. But at the end of the day, bourgeois tigers do not change their profit-seeking stripes.

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