Chingo De Dinero

If you have been to Venezuela recently you will know about their currency control.  If you have read about business in Venezuela recently you will know about their currency control.  It is one of the craziest things on this earth.  So, the government says the exchange rate is 2.15 Bolivars Fuertes to 1 dollar.  But, if you can do DPN transactions or exchange in the informal market, it is maybe 4 Bolivars Fuertes to 1 dollar.  So, how does this play out and who is hurt/helped.

The basic way to control the currency is by requiring all exchanges to be done by the government (CADIVI).  You can imagine how slow this must be…all businesses needing to send funds overseas much go through a government organization.  6 months waiting on cash, the supplier will not be too happy about that.  Less quantity supplied, higher prices, Venezuelan people hurt (#1 loser).  That is why yearly inflation is around 30%, they are also spending the oil money like crazy.

Also, the government must convert the Bolivars to Dollars to pay the suppliers.  They convert at the official rate 2.15, when they could you the unofficial 4, 1.85 in loses on each dollar traded (#2 loser).  Of course Venezuela produces Bolivars, so the impact is not really direct.  Additionally, citizens have learned how to get a piece of the pie, they travel, and max out their credit cards to get cash back…in casinos, or special shops set-up for this.  They then come back and convert the funds to Bolivars at the unofficial rate, and pay off their credit cards which convert Dollars to Bolivars at the official rate.  Easy way to make a few thousand dollars.  To limit this, the government restricts the amount people can spend on their credit cards overseas to 5 KUSD per year (#1 winner).  If they want to spend more than 5 KUSD, they must convert their Bolivars to Dollars at the unofficial rate (#4 loser).

The big winners of this are those who have access to convert Bolivars to Dollars at the official rate, then convert the Dollars to Bolivars at the unofficial rate.  There seem to be some banks who can do this, mainly because of close contact to government officials (#2 winner).  I am searching for a way to do this, if I find it, I will write a book about it while in the Bahamas so you can learn it too.

To sum, the government has fixed the exchange rate, which creates more bureaucracy, a tougher business environment, make a few people extremly wealthy, and screws the every day Venezuelans.  So much oil, and the government has found a way to keep the people poor.  My advise, open the market, put reasonable taxes on oil.  Cut all other taxes to 0.  Reduce government, and watch the growth.

I always wondered why my credit card company was located in South Dakota. I mean, I have no reason to think it is a bad place, but where my credit card would come?

So, the quick and easy reason is these two states have abolished usury laws. What exactly is usury, you might ask, think of it as the laws to protect people from USING other people. In particular, here, it is the interest rate you can charge. So, they can charge basically any interest rate they want. This is really great if you ask me, freer the better, we still have competition to protect us.

Next, I started thinking and why does it matter if they are where they are, I am in North Carolina, so NC laws should apply. Nope, wrong thinking…per “Marquette Nat. Bank v. First of Omaha Corp.”, the laws of where the bank is chartered is what matters. There you have it, since they are located where they are, they can charge you whatever they want.

On a side note, this is how some payday lenders get around interest rate caps (usury laws). The physical locations are just agents of the banks, which are in different states. Some states have closed this option, such as North Carolina :-(.

Also, Delaware seems like such a great place, at least by how free their state laws are…if it were only warmer, it would be heaven to me.