It is public and well-known that in Venezuela prices in bolivars from a lollipop to that of a house are adjusted / indexed daily and automatically with respect to the criminal exchange rate, with the exception of salaries, income taxes, investment budget / public administration spending and the amount of money.
To prevent this from happening and that we are not the wage earners and working people the most affected while the systematic manipulation of the exchange rate that induces hyperinflation persists, it is necessary to have a mechanism that guarantees that the entire economy adjusts / indexes in the same proportion. This is achieved with a unit of account that serves as a reference so that all adjustments are automatic without having to wait for a presidential decree to increase the minimum wage, or for the modification of the Organic Law of Public Budget, or for a change of the monetarist dogma of the BCV.
We will show two examples to illustrate what a unit of account is, what it is for and how it works.
Imagine an economy where only bread is produced. Every day 10 loaves are produced and consumed at a price of 1 bolivar (Bs) each. Therefore, 10 Bs are needed in that economy to be able to produce and consume that amount of daily bread. The minimum wage is 1 Bs daily. Suddenly, the next day, an agent external to the dynamics of the economy manipulates the exchange rate and says that it is no longer 1 Bs / US $ but 1.000.000 Bs / US $. Those who produce bread, in their logic of “inventory replacement” and with the power they have in the correlation of market forces, immediately highlight the price of bread, setting it at 1.000.000 bolivars each while the minimum wage remains at 1 Bs / day and the amount of money that circulates in the economy remains at 10 Bs.
Suppose that, to avoid these distortions, a unit of account called “petro” is established, which is nothing more than an accounting device to reference all prices in the economy. It was decided that 1 petro is equivalent to 1 US $ and since, in turn, 1 US $ is equivalent to 1 Bs, then 1 petro is equivalent to 1 Bs.
In terms of petros, the price of bread is 1 petro, the daily wage is 1 petro, and the amount of money that circulates in the economy is 10 petros. The foreign agent arrives and manipulates the exchange rate, setting it at 1.000.000 Bs / US $. The petro is always equivalent to 1 US $, but with the difference that, since the exchange rate is not 1 Bs / US $ but 1.000.000 Bs / US $, each petro will be equivalent to 1.000.000 Bs and not 1 Bs (if a petro is 1 US $ and 1 US $ are now 1.000.000 Bs, so each petro will be 1.000.000 Bs).
In that economy, prices in “petros” remain the same: bread is still 1 petro, salary is 1 petro and the amount of money that circulates 10 petros, but in bolivars, since the petro / bolivar value has changed, it will be 1.000.000 .1.000.000 Bs / bread (which was automatically adjusted with or without unit of account), 10.000.000 Bs the minimum wage and XNUMX Bs the amount of money that must circulate in the economy.
Now imagine a nation whose government only provides health services and a budget of 1.000 Bs is approved to purchase 1.000 medicines and pay the minimum wage to all personnel, which is equivalent to 1 Bs / day. In that economy 1.000 Bs circulate and the exchange rate is 1 BsS / US $. As it is also a country under siege, it decided to establish a unit of account called petro. Each petro is equivalent to 1 US $, therefore, each petro is equivalent to 1 Bs.
The budget is 1.000 petros and the amount of money that circulates as well, while the daily wage is 1 petro. Suddenly, an agent external to the economy attacks the bolivar and sets the exchange rate at 1.000.000 Bs / US $. Now each petro is equivalent to 1.000.000 Bs. Both the budget, the salary and the amount of money expressed in petros remain the same, but in bolivars they vary: the budget, which is 1.000 petros, will be 1.000.000.000 Bs as well as the amount money circulating in the economy should be 1.000.000.000 Bs instead of 1.000 Bs; the salary, which is 1 petro, will become 1.000 Bs / day instead of 1 Bs / day.
In petros everything remains the same, but in bolivars all prices increased. The important thing is that not only did the prices of goods and services increase, but they also increased, and in the same proportion, the salary, the budget and the amount of money. That now there are more zeros to the right? Yes. But, if under a criminal, inclement and systematic attack by imperialism it is necessary to decide between having several zeros to the right (which can be suppressed at a stroke through a decree of monetary reconversion) or a pulverization of the real wage, a deterioration in purchasing power, a collapse of the public administration due to budget insufficiency and a fall in production and consumption. Well, you will say.
In these examples, the amount of additional bolivars corresponds to the same initial production levels: 10 daily loaves and 1.000 medications.
We highlight it for those who, under the monetarist paradigm, say that this "inorganic" money is not backed by the real economy and in production and that, therefore, it will generate inflation (as if inflation had not previously occurred and induced for the attack on the currency). It is supported by the 10 loaves and the 1000 medicines. The unit of account will not stop the attack on the currency because it is based on strictly war criteria. They may even attack, however, it prevents the enemy from achieving its main objective: to reduce the living conditions of the people through the pulverization of purchasing power and the deterioration of public services and then blame the government and undermine support. popular.
In 2018, the establishment of a unit of account for the entire economy called “petro” was approved, a measure that, as we have stated on other occasions, seemed correct to us beyond the methodology used to calculate the bolívar / petro that resulted in a paradox for our economy, which we warned at the time. However, the establishment of a unit of account was and is necessary in this induced hyperinflation. The salary was set at half petro. The measure was carried out for only 3 months.
The recent approval of the Collective Agreement of oil workers by President Nicolás Maduro (despite the debate between bonus and salary, which is very important) takes up the idea of the petro as a unit of account and, in our view, should establish a precedent to extend it not only to other collective agreements but to the entire economy including the minimum wage, pensions, public spending budgets, taxes and, of course, the amount of money. Indexing, for it to work, must not be just salary, it must be for the entire economy.
Several proposals have been presented in this regard, including that of Tony Boza and Juan Carlos Valdez, which I subscribe to.
