Relocating to a foreign country and adjusting to life in a different culture, with a different language and a different set of values can be difficult. As a foreign expatriate living in Venezuela I've become rather well acquainted with how the country operates and how to avoid problems in Venezuela.
I have specific expertise with regard to the relocation of English speaking individuals and families to Margarita Island, including the associated issues of renting or buying a home, acquiring language training, acquiring a residence or investor visa, opening bank accounts, finding competent professionals (doctors, lawyers, accountants, dentists, etc.) placing children in a private school and other associated issues involved with relocating individuals or families to Margarita Island.
Experience
Experience in the area I (a US Citizen) relocated my family to Margarita Island in early 2005, and we have been living here since that time. We are now residents of Venezuela, living normal lives and doing business here on the Island.
I am active in real estate development and sales, as well as helping foreigners relocate to Margarita Island. I'm a writer, and my website (http://bulletproofretirement.com) has over 200 articles on the various aspects of relocation abroad and moving to Margarita. As a writer and researcher I am quite experienced with providing complete answers to specific questions.
I currently assist with the relocation of 1 to 2 individuals each month, about half of them from the US and the rest from Canada and the UK. Some of the clients are retirees, others are business or real estate investors who need assistance in finding quality properties to purchase. In either case, I've become experienced in solving problems with moving to Venezuela.
Expert: Brian Botta Date: 3/1/2008 Subject: How money transfers actually work
Question Hi Brian.
I am trying to move to Venezuela from Australia. I have debts here that need to be paid after I am gone. I'd rather not declare bankruptcy if I dont have to.
As you said in reply to another question.
I know about the black market in Venezuela and have used it previously well to my benefit. But I need to transfer money from a local bank account to an Australian account.
Do the same rules apply as transfering between US banks and Venezuelan banks?
Thanks Peter
Answer Hi Peter
You say that you need to transfer money from a local bank account to an Australian bank. Unfortunately, that's impossible because of the exchange controls. The exchange controls effect the "exchange" of Bolivares with ALL other currencies in the world.
What follows is a somewhat longwinded explanation of how the system works, not just for your edification but also for the benefit of other readers.
First, let's be philosophical for a moment... and ponder the question of how someone can "own" something that doesn't really exist except as electronic digits on a computer network. This is the reality of what we know of as money. Banks no longer have huge vaults with bags of coins in them. In fact, the physical money we call "cash" now only represents a very small percentage of the "money" in existence. The vast majority of monetary transactions are in the form of checks, debit and credit card transactions, ATM and wire transfers. It's electronic, and electronic money can move very, very quickly.
This "money" has value only because people have confidence in it's value. Circular reasoning to be sure, but that's the nature of fiat money. Why is a piece of paper from a Central Bank worth far, far more than the cost of the paper and ink, and why can't we all get in on this business of printing pieces of paper for about a penny and selling them for anywhere from $1 to $100? That's a discussion for another time.
We're stuck with this "money" stuff... and different countries have different types of money... and to get value from one country to another requires a system of value exchange (FX market) and transmission network (SWIFT system).
First, let's talk about the Foreign Exchange (FX) market. To get money into and out of Venezuela, someone has to have both a pile of Dollars and a pile of Bolivares and be willing to trade one for the other. We'll call these people exchange operators, and they could be individuals or businesses. A Venezuelan bank that owns a subsidiary bank in the US might be an excellent candidate- they have lots of Bolivares and lots of Dollars. An insurance company the handles lots of international business would naturally be in the same position. A wealthy individual with large deposits of both Bolivares and Dollars is also a good candidate.
Would they be willing to receive a domestic payment in Bolivares in return for a deposit in US Dollars outside the country? Possibly, but look at it from the operator's position: the question is, how do we value this transaction and how do I get paid for doing this? Let's look at a transaction and see how it works.
Someone has some Bolivares and they call an exchange operator to find out what the rate of exchange is. The operator gives them an exchange rate, which is agreed upon, and the individual deposits an amount of Bolivares in the operators bank account.
The exchange operator, having received a deposit in Bolivares, now needs to settle the transaction outside the country. How many Dollars need to be deposited outside the country? That's where the exchange rate comes in: it's the market's decision on how the exchange will be valued at that time.
Many people buying and selling represents the supply and demand. Where there is more supply, the price falls. Where there is more demand, the price rises. This is the time of year when everyone is bringing Dollars into Venezuela to pay their taxes. The economy is booming and they've made a profit, and now they have to pay their taxes. Currently the supply of Dollars is high, so the price for Dollars has been falling... and this is an EXCELLENT time to get money out of Venezuela. Later in the year when the merchants have to purchase Dollars to get goods into the pipeline for Christmas, the rate will go up, up, up. However, I digress.
We know the exchange mechanism, but how does the exchange operator make money on the transaction?
The exchange operator has what is called a "spread" and that's how they make their money. They might buy Dollars for 4.4 Bolivares per Dollar and sell Dollars for 4.5 Bolivares per Dollar. That .1 Bolivar per Dollar "spread" is the margin on which they operate. This is why times of great market volatility will result in a spread that sometimes goes as high as .6 or .7. Exchange operators aren't in business to lose money. If the market is volatile, they simply increase the spread to something that makes them feel safe. Sometimes the market is so volatile they simply turn their phones off and quit for the day. I've even seen instances of extreme volatility when the major market players had a conference call and agreed to shut the market down.
So, the exchange operator, having added to their pile of money in Venezuela, now goes to their pile of Dollars in an offshore bank and transfers the correct amount to the client's account somewhere else in the world. This requires a transmission system, and we call the process a wire transfer. This dates back to the days in the US when a bank (notably Wells Fargo Bank) would transfer funds from one individual to another based on an authorization sent by telegram: thus, it was a "wire transfer" of funds.
Today a wire transfer is still only a series of messages between banks that transfer this nebulous "ownership" of digits in the banking system's computer networks. It's not money that's transferred, it's information about the ownership of the money. Between countries the system sends and receives money on a constant basis, so it's a solid method of value transfer.
That's foreign exchange, and as long as everyone is willing to play nice the system works reasonably well.
However, sometimes a country will decide to impose "exchange controls" on their currency. It is said that the exchange controls are in place to prevent capital flight, but it's really about control of the resident population. If people cannot get their money out of the country, they find it difficult to take vacations or immigrate.
Currency controls prevent the banking industry from participating in any free market exchange operations... and people wishing to purchase the controlled currency must purchase at a specified price from an approved source. Want to purchase really expensive Bolivares? It's easy. Just use your credit or debit card anywhere in the country and the government banking system will "exchange" that money at the official exchange rate of 2.15.
What about people who want to purchase foreign currency? The government allows this in certain situations, because the Dollars are required to purchase goods and supplies for imports. The government agency that does this in Venezuela is called CADIVI. For people meeting certain criteria, they will purchase Dollars at the official rate of 2.15 Bolivares per Dollar in order to import things.
People who cannot get the government to purchase their Dollars have to buy the Dollars on the parallel market, and the current rate is about 4.5 Bolivares per Dollar: more than double the official rate.
This situation drives Venezuelans crazy. Some want to liquidate their property and leave Venezuela with their money... but only if they can get the official price. They forget that the free market price and the official price were once the same. The free market price of the Bolivar went down over time while the government artificially held the official price in place.
Of course, after buying their Dollars at the official price they'd probably want to repurchase Bolivares at the free market price- who can resist more than doubling one's assets? That would quickly get out of hand so the government tries to guard against this happening with multiple layers of bureaucracy. The result is that only criminals and people who are *very* well connected politically can buy Dollars at the official rate with ease. It almost begs the question of why I make a distinction between the two classes, but that is a matter for discussion another day.
This is as good a general discussion on how the exchange markets work as I can give within the limited time I've got today. The government won't let Peter transfer his money from a local bank account to Australia because it's against the law. There are, however, many intermediaries who can take care of this for Peter, and all he has to do is negotiate an arrangement.
