The Bloomberg article about the foreign exchange black market in Venezuela has very eye catching title but carries plenty of useful information about the current situation in the country.
I have been planning a trip to parts of South America that I have not been to previously and Venezuela is on the list. The problem is that you absolutely MUST exchange foreign currency on the unofficial market or the prices for hotels and services are just incredibly high.
You can access the entire Bloomberg article here and below are some highlights:
The bolivar has fallen to 71 to the dollar from 23 on the black market since President Nicolas Maduro succeeded his mentor Hugo Chavez in April 2013. The government tightened currency handouts to stem the outflow of foreign reserves, which are near a decade low. The official exchange rate, reserved for imports of food and medicine, is 6.3 bolivars per dollar.
The dollar shortage is turning Venezuela into a two-tier society similar to the Soviet Union and Cuba, said Steve Hanke, professor of applied economics at Johns Hopkins University in Baltimore. Those with access to dollars such as prostitutes, tour agents, airport taxi drivers and expatriates are able to shield themselves from inflation by trading their greenbacks at ever higher rates. Those who can’t are seeing their living standards decline.
Officials have tried jailing traders, shutting down brokerages and setting up four parallel exchange systems to stem the rise of the unofficial rate in the 11 years since Chavez began controlling the bolivar’s price.
“We are going to defeat the parallel dollar,” Economy Vice President Rafael Ramirez said March 20 as he announced a new currency market. The system, known as Sicad II, allows companies and individuals to buy dollars in restricted quantities for about 50 bolivars each, an 88 percent devaluation from the official exchange rate.
The problem is that hotels are priced in dollars and then the price is converted using the official exchange rate of 6.3 VEF per USD to the local currency. If you pay using a credit card, the conversion is done using the official rate and you lose a lot.
When you do the conversion using the “unofficial” real rate of 70 VEF to USD the prices suddenly are very affordable. The price of the $500 hotel suddenly becomes $45 (500*6.3/70). The problem is that converting bolivars to dollars or any other currency within Venezuela using other than the official exchange rate is illegal.
So, have any LoyaltyLobby reader been to Venezuela lately and how did you exchange money on the black market?