Wednesday 13 January 2010

Multiple exchange rates

The Financial Post reports that the upcoming Venezuelan devaluation is going to be somewhat...odd.
Items classified as nonessential now have an exchange rate of 4.3 bolivars per U.S. dollar, up from 2.15 and compared with a new rate of 2.6 for essential imports such as food and medicine.
This rather confused me until I remembered that
  1. This is the rate at which Venezuelans can buy and sell foreign currency from the Venezuelan government, who do not promise to always meet demand at the stated rates
  2. The official exchange rate remains inaccessible to most Venezuelans, who trade currency in the grey market at worse rates
  3. This is more an accounting device to boost the reported Venezuelan dollar profits of oil exporters (who can sell oil for US dollars then report income in Venezuelan dollars at the 4.3 rate while buying foreign-built equipment at the 2.6 rate)
See also the Wall Street Journal.

I'm told that in the bad old days in New Zealand, folks needed permission to get foreign currency; academics needed government permission for the foreign exchange to get a journal subscription. And that Muldoon wanted to devalue the NZ Dollar, but only against the Australian dollar (and got angry that Treasury/RBNZ told him it couldn't be done without...large problems). The dual exchange rate made me think of the Muldoon move....

2 comments:

  1. Is this also a very backward way of trying to stimulate domestic production? You could import "essentials" in the form of raw materials at the lower exchange rate, which makes domestic producers more competitive after they use those raw materials to produce the same goods that are being imported at the higher.

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