The Parable of the $175,000 Greenback

United_States_one_dollar_bill,_obverseSay you come into Venezuela with just $1 and an eye for business. Just how much money can you turn that bill into using tried-and-true, being-used-right-now scams? With a bit of gumption the answer to that is…$175K or so. Really. Here’s how.

First, take your crisp new dollar bill to a black market currency dealer and buy yourself Bs.85.

Did you make sure to get travel insurance before you trip?


Now go to a doctor and buy yourself Bs.85 worth of medical attention. Any pretext will do. Don’t forget to get a receipt, though: your insurance company back home will reimburse your 85 bolivar claim at the official rate, giving you back $1 for every 6 bolivars and 30 cents you spent.

So after one doctor’s visit, your $1 has already turned into $13.50. Not too bad.

But we’re just getting going here. Needless to say your next step is to take your $13.50 right back to the currency tout and buy yourself 1,150 bolivars.

Next, take your 1,150 bolivars to any reputable Caracas jeweller. There, you can get about 5.7 grams of 18-karat gold for that. As it turns out, back stateside those 5.7 grams of gold are worth $182.29.

Your Caracas black market dollar dealer will be expecting your call by now: the $182.29 you netted for the gold buys you 15,495 bolivars.

This is fun, isn’t it?

But maybe you’re getting a bit impatient at this point. Sure, a 18,290% profit with no risk and for doing no real work isn’t too bad, but let’s say you want to make some real money.

For that, you need to go to a market with genuinely grotesque price differential. And in a petrostate like Venezuela, that can only mean one thing: gasoline.

At Venezuela’s ludicrous price of 0.097 bolivars per liter, the 15,495 bolivars currently burning a hole in your pocket can buy 159,742 liters of unleaded gas. That’s 42,200 gallons or so.

The next step is to load your gas into a tanker truck and drive it out to Colombia, where each and every one of your 42,200 gallons will sell for US$4.14.

By the time it’s all said and done, that clean, crisp $1 bill you came into Venezuela with has turned into US$174,905.

That’s a seventeen million percent profit margin for doing basically nothing.

This isn’t just some thought exercise, it’s the central reality of the Venezuelan economy today.

The catch, of course, is that the viability of each of these scams depends first and foremost on having official protection from some regime-connected power broker. You can’t smuggle gasoline out of the country without a National Guard officer (or 10) taking a cut. You can’t load much gold into a northbound plane without paying off an airport guard. Any attempt to buy a substantial number of official rate dollars is going to depend on some regime official – probably wearing olive green -giving his go-ahead.

As the protests mount on the streets, it’s important not to lose sight of this: it’s these rackets those guys are protecting.

And their willingness to use violence to protect them is roughly proportional to the profit margins involved.

39 thoughts on “The Parable of the $175,000 Greenback

  1. I reckon you are right. It is depressing, specially after reading something like this (just a poll, don’t know how reliable, but probably not far from the truth)


    • Yesterday, I happened to come across the poll I think the Universal story is based on. I have no idea how reliable it is, of course. I gave it a quick glance, and two things stood out: (1) the relatively favorable rating of Maduro, and (2) field dates ended in Jan 2014.

      Reliable poll or not, there is probably a significant shift from the December-free-appliance days of Christmas Vs the carnival chaos today. In any event, here’s the link:


      • Ay, qué vaina tan fea!
        La mayoría de los venezolanos aun cree que no se debería aumentar el precio de la gasolina!
        Me pregunto si les hicieron esa pregunta de los dólares a los venezolanos de clase C, D,
        muchos de los que jamás han salido de Venezuela.

        Definitivamente los venezolanos quieren que los demás malgasten menos, que ellos personalmente tengan más, que se acabe la corrupción, pero que le permitan su guiso.

        Algo que me parece triste es que no preguntan si se considera social demócrata o comunista.


      • The numbers on this poll are shocking. My conclusion: close to 75% of the people have been brainwashed or are just amazingly ignorant. It is crazy to believe there may be a brighter future for this country. The damage has been done, forever…


    • As I read it that means 54% (assuming those keeping hush support the opposition, a reasonable assumption) support a solution implemented before elections. That does not sound all that terrible actually ….


  2. I think the part where you buy gold doesn’t work. I went once to the jewelries at Sambil Mall in Caracas, and found out that the price of an ounce of gold in Bs when divided by the price of the same once of gold in $ would give you a rate higher than the black market parallel rate, so instead of making money you would be loosing it.


    • Uhum…why would you want to inquire such a thing, Sir? I suppose you wanted to buy a ring for your fiancée, didn’t you? :-p


      • Nope. My inquire was out of curiosity, since I was told about this gold thing long before F. Toro wrote about it in this post.


      • I’ve been trying to pull the gold scam for years, still hasn’t happened. I’ve never met anyone who would sell at the official rate. BCV included.


  3. Or you could stay in school and study and work hard and get blacklisted by the government and shot at by the National Guard for thinking for yourself, kids!


  4. Fantastic article! Blown away. Most people who reads this will be left speechless,….and,…and heading to Caracas on the next available flight, with health insurance of course….


  5. OT – I recently visited the OAS website and sent them this message:
    “I just visited your website to understand what the Organization of American States stands for.

    On your opening website page, a section called “About the OAS” defines what OAS was set up to do.

    The Organization was established in order to achieve among its member states—as stipulated in Article 1 of the Charter—”an order of peace and justice, to promote their solidarity, to strengthen their collaboration, and to defend their sovereignty, their territorial integrity, and their independence.”
    The Organization uses a four-pronged approach to effectively implement its essential purposes, based on its main pillars: democracy, human rights, security, and development.

    The OAS uses a four-pronged approach to effectively implement its essential purposes. The Organization’s four main pillars––democracy, human rights, security, and development––support each other and are intertwined through political dialogue, inclusiveness, cooperation, and legal and follow-up instruments that provide the OAS with the tools to maximize its work in the Hemisphere.

    ‘WHO WE ARE and WHAT WE DO” pretty much describes what the organization focus should be, but the OAS has been tip-toeing around the Venezuelean protests. It is pretty obvious that human rights have been trampled on by that government, the National Guard, Police and motorcycle thugs have been shooting at, torturing and harassing the protestors, but yet the OAS is silent. In case you haven’t noticed, maybe because of the government media blackout, this is NOT a democracy.

    These protesters are looking to the OAS for help, but all they are getting is spin. Is the OAS just another organization that has no bite, just barks?”

    I think if enough people do this, it will force the OAS into action if it is any kind of an organization.


    • What kind of action would you expect the OAS to take?

      I’ve looked at the OAS Charter and the much misunderstood Democratic Charter, and there’s very little it can do.
      Other than carrying out standard diplomatic initiatives (eg, call upon the government to resolve the situation, and offer its good offices, etc), there is very little this Organization can do.
      The Democratic Charter grants the Organization, as a measure of last resort in situations where the constitutional order of a member State is at stake, the power to suspend that State from participating in the OAS (see art 21 of the Democratic Charter). But this is just about all it can do.
      I wonder if the Organization could adopt sanctions (which must be in themselves lawful under international law, so perhaps sanctions of an economic character), but I could not find any provision in the OAS Charter dealing specifically with the Organization’s power to adopt sanctions. I wonder if the doctrine of implied powers might cover this gap in the OAS Charter (I read of economic sanctions adopted by the OAS early in the Cuban crisis).
      In any event, even if the OAS had the power to adopt sanctions, then there is the further question of their binding character: are members of the OAS under an obligation to respect and enforce the sanctions? For, let’s face it, unless all States comply with them sanctions are unlikely to achieve anything (indeed, even when they are binding on all they are unlikely to achieve any results… ). I could not find anything in the OAS Charter as to the binding character of sanctions–and this must be clearly stated: States are only bound by what they agree to in a treaty, so if the treaty doesn’t say anything about this, then States are simply not obliged to perform or carry out the sanctions imposed (Note that in the UN Charter, Art 25 of imposes an obligation on member States to carry out decisions adopted by the Security Council, when the Council acts under Chapter VII of the Charter).

      Of course, suspension from the OAS, coupled with calls to the Venezuelan government, the performance of good office functions, and the imposition of some (non-binding) sanctions, and so on, could create sufficient political pressure on the Government to force it into action of some sort.
      This said, the likely result of this scenario is yet another promise from the Government to investigate the events and establish the truth, to prosecute those responsible for the deaths, etc.
      Political pressure from the OAS is unlikely to result in a change of government: the OAS cannot force a government out. Bound as it is by international law, the OAS is under an obligation to respect the fundamental principle of non-intervention. Indeed, even the UN must respect this principle and can only set it aside when there is a ‘breach of the peace, threat to the peace, or act of aggression’, in accordance with article 39 of the UN Charter. (Note that this does not necessarily rule out UN action in the case of purely internal crises, but these internal crises much reach a certain threshold before the Security Council can lawfully act: they must such that they create instability in inter-state relations, say, with a massive influx of refugees).

      Finally, the OAS acts through bodies composed of member States: for as much as Insulza may want to do something about (and it seems clear he doesn’t), the OAS cannot actually do anything unless States in the General Assembly or the Permanent Council decide to act…

      Anyway, I hope this clarifies a bit what the OAS can do (very little) about the current situation…


    • Dang. I’d heard about this scam in the past, but I can’t be sure it’s still possible. So now I’m doubting myself. Somebody in Caracas go to a jeweller and check.


      • Check my comment above. I’m in the gold biz, it ain’t possible.

        You still can make a boat load of money with the gas scam.


  6. La Cochina Gorda: That is what the title of your story should have been, “The Fat Sow” that is what my father used to call Venezuela. He was a student of Venezuelan politics and growing up he would tell me stories of him as a child growing under Juan Vicente Gomez. Remember him? The one who actually ran the country like it was his own private plantation. Things have changed very little.

    Back to the fat sow. He explained to me that the art of all Venezuelan politics could easily be explained with the parable of the fat sow and all her squealing piglets trying to muzzle their way into a tit. He continued that Venezuelan politicians were like piglets trying to grab onto the sow’s tit to fatten themselves up before another piglet was able to dislodge them.

    Sadly, even after 100 years of solitude the fat sow is still fat with rich milk to nourish yet another generation of squealing piglets.


  7. But, but, what will this do to the Gini index? How can wealth be fairly distributed if scams like this determine who gets rich?


    • Your point is well taken. The arbitrage schemes take up a definite part part of national income- how much I don’t know. I have read that gasoline is hard to obtain in Tachira because of so much gasoline being diverted to smuggling to Colombia.

      Generally, arbitrage schemes do not benefit the poor, just as the freebie price for gasoline benefits the better off vehicle owners more than it does the poor. These arbitrage schemes thus increase income inequality. But as these arbitrage schemes are not figured in official national income calculations, they are not figured in the official GINI figures. Which also points out that to the degree that the GINI figure doesn’t reflect income through arbitrage, it is not accurate. Which is not unusual for GOV statistics, unfortunately.


    • It’s not just the scams, it’s the friction that it brings to the market. Efficiency goes out the window, everyone is playing Monopoly and stealing from the bank.


      • In regards to efficiency smugglers are adding to the efficiency of the market, by gradually forcing Venezuela to increase the price of gas or limit its distribution as well as bringing the gasoline to people that will make more rational use of it.


        • Did you check out the poll information Zuliaman linked to above? Please, read.
          Quite shocking, if you ask me. Venezuelans still think they can get everything for free, that petrol is produced by virtue of tropical heat and moved from the insides of the Venezuelan soil into the petrol stations, just like that.


  8. Im not sure its the official policy of the govt to directly promote corruption among the military , its the official policy of the govt to knowingly tolerate corruption in the military as well as among any other well placed high govt officials provided they are political loyal, identify loudly with the regime and dont cause too public an scandal with their corruption .

    This last condition doesnt apply if your support is so important to the regime that to denounce your corruption damages the govts image more than the resulting scandal . Of course this tolerance in a way fosters corruption by making the corruption commonplace , something which calls for immitation , which is very seldom if ever punished or reported .

    The whole system of institutional controls are now largely dismantled . There are low level cases however where govt organizations still attempts, not actually to punish corruption but to stop it provided no scandal is created which can hurt the govts public image. The corrupt party quietly resigns or is quietly allowed to retire, or is quietly moved to another job , meantime his corruption is never made public , the govt takes up the cost , and very gingerly tries to handle the loss such corruption causes the govt without anyone getting to know about it. This need for secrecy to avoid scandals breaking out which may hurt the govts image is one of the main reasons why corruption is so seldomly reported much less punished even when it gets found out.

    Another cause of this govts burguoning corruption lies it the fact that it is so incompetent, that any corrupt official can get away with murder because controls are so bad and inefficient, This gross administrative incompetence applies not only to cases of corruption but to many other areas of govt activity, the govt is run very inneficiently giving officials and govt connected crooks a free playing field to cook up their many misdeeds. (guisos) .

    The govt is hell bent on centralizing but it depends on a very spread out and inept machinery of govt so that top govt directives get diverted or ignored or ‘interpreted’ in ways that the top govt bosses never even imagines . As the power of the top people in govt enters the laberyinthic and fragmented govt apparatus in the form of a high level decision it becomes dissolved into a miriad of small rivulets or pools of stagnant power that dont get anything done !!.

    . .


  9. Maybe not with gold or gasoline, but I know this guy whose mother goes to the United States (not sure where) twice per month. She buys all kinds of clothing merchandise brings it into the country and sells it in a boutique she owns. I don’t know how long she has been doing this, but to this date she has purchased
    2 condonimuns (one for her and one for her sone). I always wonder, how does she bring all this merchandise into the country? (friendly olive green officers comes to mind). How large are her margins to be able to cover the business overhead and buy property abroad?

    The irony and decadent part of it is that she is using “friends” withint the system to get the hell out of the country. Que te parece?


  10. I don’t know what’s crazier, Venezuela’s exchange rate policy or the US health care system. Because the subsidy is coming from both!


    • Not necessarily the health care system. Most HMOs/PPOs do not offer coverage outside of the US (or at least real coverage – maybe one or two hospitals in an entire country) and those that do are typically in a few European countries or Japan. Travel insurance is typically offered by specialized insurance companies that often have no more than a cursory relationship to the healthcare system as it exists now.

      When we travel, we typically get travel insurance through AMEX since it covers emergency health care, travel delays/cancelations, death/dismemberment, crime (baggage loss/theft and stolen credit cards) and a few other things like rental cars; not typical HMO fare. Interestingly, for individually determined premiums by country, Venezuela has some of the highest premiums for travelers.

      Incidentally, the premium was left out of the calculation, which would lower your margins slightly. You’d still make a ton of money…just not quite that easily. It’d be better to skip the insurance and take that additional $200 – $300 or so and arbitrage it directly. Imagine $200 of gasoline at the parallel rate…


    • Ex. rate at BsF. 18/ $ este se fumo una lumpia de las buenas. The “innombrable” is at more than 4.5x this level. Even if they start to straighten out the economic mess, it wouldn’t go below 50, if at all…


  11. I know it is a bridge too far for the TNR piece, but for this blog it may be worth mentioning how venezuelans are no strangers to the currency-control/phony-import racket. Time is a flat circle.


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