April 3, 2013 | By Tekoa Da Silva
I came across an interesting story yesterday, translated from a Caracas-based news publication. It indicated that for the second time in only five weeks, the Venezuelan government has devalued its currency.
Unlike the first devaluation however, the second was done behind closed doors with local financial interests placing bids on dollar exchange transactions ahead of the country’s citizenry.
Caracas reporter Víctor Salmerón states that, “Two devaluations have been implemented in the last five weeks so as to obtain more bolivars per petrodollars…the forex rate was cut [devalued] by 46.5% from VEB 4.30 to VEB 6.30 per US dollar.”
Salmerón adds that in the most recent devaluation,“Sicad did not reveal the price of the US dollars sold in the bid launched on March 26, [but] financial sources have said that companies paid VEB 11.00-14.00 per US dollar—that is twice the [previous] rate.” [ie. another 50% devaluation]
There are a few interesting things to note here. The first is that the Venezuelan government and a few financial interests are dumping their local currency behind closed doors ahead of the populace they’ve been elected to serve.
Secondly, the country is devaluing against a currency which is already “devaluing” when measured against gold.
After reading that piece yesterday I ran some numbers on the devaluation declines. Here’s what I found:
-The Venezuelan Bolivar has lost 82% of its value against the US dollar since 2005.
-The US Dollar has lost 75% of its value when measured against gold since 2005.
So how far has the Venezuelan currency actually declined in real terms when measured against gold? The chart will shock you.
With the help of Nick Laird over at Sharelynx.com, I was able to put together a chart of the Bolivar vs gold, which includes this week’s suspected, “behind closed doors” devaluation of their currency against the USD:
(click to enlarge)
The chart shows that when measured against gold, the Venezuelan Bolivar has “collapsed” from Bs. 860 in 2005, to what appears to be over Bs. 20,000 today. This represents an over 23-fold move (2300%) in gold over the last eight years.
In response to the recent devaluations, Venezuelan citizens have stampeded their way to retail and electronic stores, buying any goods left in sight with their post-plundered-pieces-of-paper currency (PPPP’s if you will).
Among the swarming herd unfortunately, were many families and senior citizens, which due to economic & educational challenges are always the last to respond.
One thing we can be certain of however, is that holders of physical gold, silver, and producing real assets have not been fighting for places in line following these devaluations.
Final Point: Unless you like waiting hours (or days) in line for the distribution of low-quality, high-priced basic necessities (food, water, clothing, etc.), then consider adding to personal stocks of hard assets with absolute precision.
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Tekoa Da Silva
Bull Market Thinking