The Economy of Venezuela
Price and Exchange Controls
Fixed prices and a controlled exchange rate created shortages, black markets and corruption.
Controls distorted everything.
Price controls
Caps on basic goods made production unprofitable, and shelves emptied.
Exchange controls
From 2003, access to dollars at an official rate was rationed.
Arbitrage
Those with official dollars could resell them at black market prices for huge profits.
Result
Imports were misallocated and domestic producers struggled.
A black market
A dollar cost far more on the street than at the official rate, creating opportunities for corruption.
Assuming price caps always protect consumers
They can create shortages.
Key takeaways
- Prices were capped.
- Dollars were rationed.
- Black markets flourished.
- Producers suffered.
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