Some things are priceless; your currency shouldn’t be one of them

el Monje Giordani

Serves us right for putting our economy in this guy’s hands

So these two stories have been making the rounds recently. The first has Caracas as the 9th most expensive city in the world (comically sandwiched between Paris and Geneva). The second has the bolivar – as measured by Big Mac purchasing power – as the most over-valued currency in the world. Both are subtly wrong, in ways that Finance Minister Jorge Giordani must find gratifying.

Take first that EIU study showing Caracas as the most expensive city in the Americas above, say, New York, Vancouver and Sao Paolo. Can this possibly be true?

Well, it could be, but only if you’re a dumbass gringo who shows up in Caracas and whips out an overseas credit card every time he has to buy a cachito. See, when you swipe a foreign card you get charged a dollar for every Bs.4.30 you spend. And, obviously, at this official rate Caracas prices are silly – anyone up for a $9.40 kg. of bread? Which is why only psychopaths (or people on devil-may-care expense accounts) use gringo credit cards in Caracas!

Sane travellers do the responsible thing and buy bolivars illegally from some random guy they meet at the airport – which gets them a cool 60%-80% discount on everything.

Thing is, if you still believe in Bs.4.30 dollars, we may need to sit down for an earnest talk about the Tooth Fairy. Because we’re in the realm of fiction here: for the average Venezuelan importer, the prospect of obtaining dollars at Bs.4.30 a pop is no more real than goblins who hand out magic cash for fallen teeth.

Yes, the EIU’s report comes with an explanatory note about exchange rate distortions, but the note itself makes an obvious mockery of Caracas’s place in the rankings – so why include the city at all?

Fact is, official rate dollars are reserved for public sector imports and bolibourgeois insiders. And it’s no wonder: the official price of dollars is so absurdly cheap that the Central Bank’s dollar reserves would run out in nanoseconds if wider access was allowed at that price, as everyone who holds bolivars rushes to trade them for bargain-basement dollars.

In some ways, though, the story about the crazy overvaluation of Venezuelan currency as measured by the Big Macs it can buy is even more misleading. Because, sure, the Bs.39 you need to buy a Big Mac in Caracas would theoretically get you $9.08 at the official rate but, again, unless you’re one of a dwindling set of red cronies, that’s of no relevance to you.

If you’re a normal mortal with Bs.39 in your pocket, you’ll be lucky to find anyone to take them off your hands for more than two or three bucks. At that rate, the bolivar is strongly undervalued. Remember, a Big Mac costs $4.37 stateside. The Bs.39 in your pocket are going to buy more Big Mac in Caracas than the $2 or $3 that you could get for them would buy stateside.

The trouble with both of these stories isn’t just that Bs.4.30 long ago ceased to be an even vaguely realistic price for a U.S. dollar in Venezuela. The trouble is that the government has managed to drive the alternatives so far underground that there really isn’t a usable rate you can put in its place anymore.

In Caracas, the dollar black market operates more and more the way your neighborhood cocaine market operates – transaction costs are through the roof; reasonable, risk-averse people won’t participate, and as a result the price on offer to you depends entirely on the personal connections you happen to have with a series of sharks willing to take big risks for a chance to make big profits.

So is the price 14? Is it 20? More? Is there just no supply at all? All those answers may be right, and at the same time, depending on who you are, who you know and who you deal with.

What we don’t have, really, is a market: a place where prices convey meaningful information about relative scarcity. Fourteen years on, Giordani got his wish: economic agents can’t “dollarize” their prices because there isn’t any identifiable, agreed-upon, generally accessible prize people can refer to when they want to trade bolivars for dollars.

But if that’s the case, applying the Big Mac Index to Venezuela is as silly as attempting to place Caracas prices in international perspective.

[Hat tip: Omar.]

33 thoughts on “Some things are priceless; your currency shouldn’t be one of them

  1. When the parallel market was declared illegal, we debated what would happen. JC, can you go back and look at the comments and tell us if our predictions were close?


  2. The flaws of both calculation methods mentioned in your post are most definitively true. However, when we look at the ratio of living expenses in Caracas to local income, we end up with the exact same conclusion: Caracas IS an expensive city.

    I’ll take you up on the bread example: in Caracas, the per pound price of French bread is Bs. 12,14 (source: while in NYC, the price is nearly USD 3,36 (source: When we look at the minimum wage in each city (in their local currency), we’re looking at: Bs. 2.048 for Caracas (source: and USD 1.160 for NYC (source: Percentually, we’d find that a single pound of bread represents 0,59% of the minimum wage in Caracas… twice as much as it would represent for a newyorker on minimum wage (0,29%).

    Go ahead, look at prices in both cities and compare them to their minimum wage; that gives you a pretty fair idea of how expensive it is to live there… Unfortunately, Caracas does not fare well at all…


    • To follow through on Ezequiel’s note of purchase power, I must also add that not only is Caracas almost prohibitively expensive for anyone earning BsF but also that I find salaries there to be some of the lowest I’ve seen.

      As far as I know, most of my friends have monthly salaries between BsF 8-15K. These are engineers, systems analysts, executive producers graduated from top-tier universities, working in multi-national companies and with close to 10 years of experience. I’ll let you do the depressing math to figure out how much this represents in US dollars at the official rate, the parallel rate, and how many months it would take for these individuals to buy a 2 bedroom apartment in Montalbán for the asking price of BsF 1,2M.

      As a similar exercise, I invite all readers to estimate how many of their friends and relatives in Vzla manage to (honestly) earn BsF 20K per month, which even at the official rate is less than US$5,000 – a decent yet unspectacular figure in pretty much any large city in the world, especially any one of those mentioned in EIU’s survey.


  3. I will jump in into the shoes of that irresponsible gringo(*) business man:

    “Man!, I’ve just landed and OMG: Thinks are quite expensive here!. There are some guys offering me a better currency deal, but somewhere I read that that is illegal here. Will I risk my reputation, my company’s, my work, and risk going to jail here for some extra bucks? No way!. Also, I’ve heard that jails here are among the worst shitholes in the world!”.

    “Besides, those guys offering me cheap bolivars look like shoddy characters. I also heard that the crime rate here is unbelievably high. So I may face something worst than jail by dealing with them… I’ve made my mind: I’ll pay everything with the company credit card, it doesn’t matter how expensive it results to be.”

    “On one side, it is my company who will pay, not me. On the other hand, those expenses will be anyway charged to whatever products or services we sell here… In summary, the Venezuelans themselves will end up paying for these high prices and their crazy ways… I feel pity by that poor child begging in the street, but paying in full with the company credit card is the safest choice, and a sound business decision too”.

    Therefore, after strolling through the mind of a foreigner business man, for all practical purposes the EID story is the right one. The story would be different for a foreigner tourist, but let’s face it: Those just don’t come here.

    (*) Substitute here for American, French, German, Chinese, etc.


    • Those were my same thoughts the first time I visited Caracas. Now, I only enter the country with credit cards that only have a $1000 limit, so if they are stolen my loss isn’t that great.


      • You and Dago are just two nerds really.
        Next time you come to Caracas please post it here, so few of us can arrange something better for you.
        You could even jump into one of my tours, for a very cheap price:
        Hey Toro, I’m sorry for the self-advertising here. Not intentional.


          • Shoddy character???
            You’ve been seriously mean Dago!
            I was probably in Europe by the time you decided to adventure yourself into this shithole called Caracas.
            But if you want to see the hot smuggling routes of alkaloids on the easternmost part of the country, seasoned with amazing nature and adrenaline-driven risk of being shot for nothing, I’m the man to talk to.
            I work monitoring a national park, so all these are nice add-ons.
            I hope JMBG¡s fan is not gonna come to publish my whereabouts in all national newspapers now.


    • When you write your expense report, normally, you must use the official exchange rate. So, what some business people do is get cash in the black market and use it for all their expenses here, use the official rate for the expense report and pocket the difference ….. sweeeeeet.


  4. The Economist in its report explain why Caracas is in the ranking. Quoting

    Caracas index is skewed by fixed exchange rates
    Some observers may be surprised to see Caracas feature among the ten most expensive cities. Price volatility in the Venezuelan capital has certainly been strong—so strong, in fact, that official inflation reached almost 20%, while aggregate price movements in the survey were over 25% year on year. This, however, has come against a backdrop of exchange rates relative to the US dollar having been fixed. The official bolívar to dollar rate has been unchanged at 4.29 in recent years, despite strong local inflation. In fact, using a parallel “unofficial” exchange rate for the bolívar of around 14:1 for the last year would make Caracas the joint cheapest city in the ranking, alongside Mumbai and Karachi.


  5. Since I have never returned to Venezuela since I left, in 2003, I do not know what happens to the people who have no dollars. How do they manage? I guess it is for them that Caracas (or Venezuela) is very expensive. I have done some back of the envelope calculations using the amount of time it takes for a Venezuelan to work to buy a kilo of meat or whatever and it always comes out to be much more than the person in the U.S. or in Costa Rica doing a comparable job. Required time of work to buy the same thing seems to eliminate the exchange rate distortions.
    The Big Mac story can be seen differently from the way Quico sees it in his analysis. It is not so relevant that you can buy more Macs in Caracas than you do in NYC with the Bs39. What seems to be more relevant is how long you have to work in Caracas and NYC to buy a Mac.


  6. “Sane travellers do the responsible thing and buy dollars illegally from a random guy they meet at the airport”

    It should read bolívares, not dollars. The dollar-buying happens if they have some letfover Bs. on the way back home.


  7. “What we don’t have, really, is a market: a place where prices convey meaningful information about relative scarcity.”

    Actually we do & it’s value is reported daily by various websites.

    In Cucuta, Colombia there is an active exchange market between Bs. & Pesos and Pesos & US$.
    All you need to do is the math to determine the market rate.


  8. Interesting.

    Also that price for bread was for 2.2 pounds, which when you consider that the average loaf here in the US weighs about a pound, makes the bread not that expensive when compared with the US, rather average in price.


  9. It is true that the figures in both studies are distorted by the use of the official F/X rate. However, I have noticed that things are not that cheap either when you change USD at the Black Market and buy things, since many retail businesses and others (bars, restaurants) tie their BsF. prices to the black market rate, just as people often do when selling prime real estate in Venezuela. Things in Caracas are not that cheap anymore. In addition, I agree with comments by others that the disctinction that must also be made is to calculate how much does it takes for an average Venezuelan to make X amount of BsF. to buy bread for instance and compare this to other countries.


    • FYI. The so called “green lettuce” is owned by an illegal trader himself. The rate posted is always lower than the actual market….everyone who buys dollars knows this and uses it to make a bigger profit…current exchange rate is around 22 BsF per dollar.


  10. China is now simply reselling 28 percent of the oil it purchases from Venezuela for some quick profits thanks to a sweetheart deal by Hugo Chavez. China has trouble refining the heavy oil and they can buy better stuff closer to China with the profits. This is 89,000 barrels a day with a value of around $8.000.000/day. Does Venezuela need to be subsidizing China?


  11. What a Cluster Fuck Venezuela has become! Holy mother of God. It is like watching a shark feeding frenzy. Or, as has traditionally been the case, a bunch of hungry piglets sucking on the fat sow’s tits that Venezuela became when oil was discovered in 1904. And, yet, the sow is still fat and producing rich milk to continue feeding hungry piglets for another 100 years. Except that now, it is piglets from all over the world, China, Cuba, Russia, etc.

    The old saying “If you need money, ask a Venezuelan, he will give it to you” has never been truer than it is now.

    With all the wealth and resources wasted so far, the highways in Venezuela could have been paved with “morocotas de canto” as the old gaita says.


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