What's Really Behind Venezuela's Vanishing Banknotes

Venezuela is not running out of banknotes due to criminal or speculative hoarding.

Where did the banknotes fly away?
Farid Kahhat


LIMA — One of the most lucrative businesses in this part of the world is to buy government-subsidized goods from Venezuela and sell them at market prices in Colombia. This includes buying U.S. dollars inside Venezuela to trade outside the country.

The same used to happen in Peru. Under President Juan Velasco in the 1970s, leaving Peru with undeclared dollars was an offense. During the first presidency of Alan García, from 1985 to 1990, government-subsidized goods were bought in Peru and then sold at market prices in Ecuador.

When the Venezuelan government accuses criminal gangs of speculative dealings, it has a point. But many economists suggest that the roots of such speculation lie in state policies that alter economic incentives and thus make criminal transactions more profitable than any legal activity.

The Venezuelan government's allegations that criminal gangs are hoarding 100-bolívar banknotes abroad is unusual. The International Monetary Fund estimates inflation in Venezuela has reached 700% this year. In these conditions, it's logical to acquire U.S. dollars. After all, the Venezuelan currency is losing value everyday. Venezuelan banknotes will soon become just bits of paper with printed drawings.

100 bolívars equal two U.S. cents — Photo: JF Ferrer Paris

If you intend to buy U.S. dollars with your 100-bolívar bill, there's no sense taking it abroad where you will be paid barely anything for it. At current market rates, 100 bolívars equal two U.S. cents. Inside Venezuela, you could get considerably more for your money. If these "mafia gangs' want profit at the end of the day, there's no sense in taking Venezuelan banknotes out of the country!

The accusation that their goal is political destabilization doesn't make sense either. Removing cash from circulation in a country suffering severe inflation — an excess of circulating cash — could actually help reduce prices. But it's true that the situation changes between a very high inflation rate and hyper-inflation. Economists Steve H. Hanke and Charles Bushnell of Johns Hopkins University recently concluded that Venezuela is the seventh Latin American economy to experience hyperinflation.

In that context, the flight of a local currency that's losing value by the hour does broadly explain its scarcity. It's not a case of bills disappearing but the need for a massive, and growing, quantity of banknotes. This has precedent. In 1990, Peruvian novelist and presidential candidate Mario Vargas Llosa removed campaign billboards that promised to print fewer banknotes to tackle hyperinflation.

Another indication that Venezuela's problem is one of economic policy and not mafia gangs is that no other member state of ALBA — the socialist, Venezuela-led trading bloc — is suffering similar attacks by speculators. If this is a case of international sabotage to punish Venezuela for pursuing independent economic policies that harm the interests of foreign capital and local elites, then why is the same not happening in Bolivia and Ecuador?

Support Worldcrunch
We are grateful for reader support to continue our unique mission of delivering in English the best international journalism, regardless of language or geography. Click here to contribute whatever you can. Merci!

European Debt? The First Question For Merkel's Successor

Across southern Europe, all eyes are on the German elections, as they hope a change of government might bring about reforms to the EU Stability Pact.

Angela Merkel at a campaign event of CDU party, Stralsund, Sep 2021

Tobias Kaiser, Virginia Kirst, Martina Meister


BERLIN — Finance Minister Olaf Scholz (SPD) is the front-runner, according to recent polls, to become Germany's next chancellor. Little wonder then that he's attracting attention not just within the country, but from neighbors across Europe who are watching and listening to his every word.

That was certainly the case this past weekend in Brdo, Slovenia, where the minister met with his European counterparts. And of particular interest for those in attendance is where Scholz stands on the issue of debt-rule reform for the eurozone, a subject that is expected to be hotly debated among EU members in the coming months.

France, which holds its own elections early next year, has already made its position clear. "When it comes to the Stability and Growth Pact, we need new rules," said Bruno Le Maire, France's minister of the economy and finance, at the meeting in Slovenia. "We need simpler rules that take the economic reality into account. That is what France will be arguing for in the coming weeks."

The economic reality for eurozone countries is an average national debt of 100% of GDP. Only Luxemburg is currently meeting the two central requirements of the Maastricht Treaty: That national debt must be less than 60% of GDP and the deficit should be no more than 3%. For the moment, these rules have been set aside due to the coronavirus crisis, but next year national leaders must decide how to go forward and whether the rules should be reinstated in 2023.

Europe's north-south divide lives on

The debate looks set to be intense. Fiscally conservative countries, above all Austria and the Netherlands, are against relaxing the rules as they recently made very clear in a joint position paper on the subject. In contrast, southern European countries that are dealing with high levels of national debt believe that now is the moment to relax the rules.

Those governments are calling for countries to be given more freedom over their levels of national debt so that the economy, which is recovering remarkably quickly thanks to coronavirus spending and the European Central Bank's relaxation of its fiscal policy, can continue to grow.

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive.

The rules must be "adapted to fit the new reality," said Spanish Finance Minister Nadia Calviño in Brdo. She says the eurozone needs "new rules that work." Her Belgian counterpart agreed. The national debts in both countries currently stand at over 100% of GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.

Officials there will be keeping a close eye on the German elections — and the subsequent coalition negotiations. Along with France, Germany still sets the tone in the EU, and Berlin's stance on the brewing conflict will depend largely on what the coalition government looks like.

A key question is which party Germany's next finance minister comes from. In their election campaign, the Greens have called for the debt rules to be revised so that in the future they support rather than hinder public investment. The FDP, however, wants to reinstate the Maastricht Treaty rules exactly as they were and ensure they are more strictly enforced than before.

This demand is unlikely to gain traction at the EU level because too many countries would still be breaking the rules for years to come. There is already a consensus that they should be reformed; what is still at stake is how far these reforms should go.

Mario Draghi on stage in Bologna

Prime Minister Mario Draghi at an event in Bologna, Italy — Photo: Brancolini/ROPI/ZUMA

Time for Draghi to step up?

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive. That having been said, starting in January, France will take over the presidency of the EU Council for a period that will coincide with its presidential election campaign. And it's likely that Macron's main rival, right-wing populist Marine Le Pen, will put the reforms front and center, especially since she has long argued against Germany and in favor of more freedom.

Rome is putting its faith in the negotiating skills of Prime Minister Mario Draghi, a former head of the European Central Bank. Draghi is a respected EU finance expert at the debating table and can be of great service to Italy precisely at a moment when Merkel's departure may see Germany represented by a politician with less experience at these kinds of drawn-out summits, where discussions go on long into the night.

The Stability and Growth pact may survive unscathed.

Regardless of how heated the debates turn out to be, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value may make revising the agreement itself practically impossible. Instead, the aim will be to rewrite the rules that govern how the Pact should be interpreted: regulations, in other words, about how the deficit and national debt should be calculated.

One possible change would be to allow future borrowing for environmental investments to be discounted. France is not alone in calling for that. European Commissioner for Economy Paolo Gentiloni has also added his voice.

The European Commission is assuming that the debate may drag on for some time. The rules — set aside during the pandemic — are supposed to come into force again at the start of 2023.

The Commission is already preparing for the possibility that they could be reactivated without any reforms. They are investigating how the flexibility that has already been built into the debt laws could be used to ensure that a large swathe of eurozone countries don't automatically find themselves contravening them, representatives explained.

The Commission will present its recommendations for reforms, which will serve as a basis for the countries' negotiations, in December. By that point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might have a clearer idea of how intense the fight over Europe's debt rules could become — and whether the hopes of the southern countries could become reality.

Support Worldcrunch
We are grateful for reader support to continue our unique mission of delivering in English the best international journalism, regardless of language or geography. Click here to contribute whatever you can. Merci!