Salad days

Lettuce field near Watsonville, California

Lettuce harvest during the Great American E. coli Scare, Oct. 10, 2006, Salinas Valley, California.

Lettuce sure has gotten spendy.

You may have heard that Venezuela moved this year from having two exchange rates to at least four. That is, it used to have the official exchange rate pegged to the U.S. dollar and a weaker free-market rate. The official rate has for the past couple years been reserved for people importing items deemed crucial by an agency called Cadivi. (These whiz kids have routinely allowed the cheap import of designer clothes and putrid food while delaying currency trades for companies buying necessary parts for the oil industry.)

The free-market rate was set, in theory, through trading of Venezuelan international bonds in bolivars. People bought in bolivars, and sold in dollars, so if it took 4 Bs in Caracas to buy a bond that sold in New York for $1, it gave an “implicit” rate of 4 Bs to the $. While it’s illegal to publish any exchange rate other than the official one, the swap rate was frequently published by traders via postings to Twitter and anonymous blogs. Those reports, in turn, not only gave some transparency to legal buyers and sellers of bonds, but also gave a benchmark price for people in the illegal black market. That is, tourists with $500 cash who needed some bolivars for their Gran Sabana vacation could refer to the blogs to ensure the bolivar-selling huckster at the airport was treating them fairly.

Hotel Gran Meliá pool, Caracas

Everybody out of the pool! Hotel Meliá, Caracas, charges 300 bolivars for a day pass at the pool, gym and sauna -- $69.76 at the official exchange rate, $33.70 at the lettuce rate, and about a week's income for a minimum-wage Venezuelan. Mostly just a pretty picture to break up a wonky-ass post.

The government banned the swap system a few weeks ago. The well known blogs closed and were replaced by newcomers of unknown reputation and methodology. The scammers got the upper hand. With no official channels for most currency trades, all that’s left is the black market. But now there’s no benchmark for the deals. An acquaintance who organizes black market transactions says nobody is trading via money transfers under fear of arrest. On the street, near the Central Bank, a stranger offered another friend cash U.S. dollars for 12 bolivars apiece. At the airport this week a stranger offered to buy my dollars for 7 bolivars apiece.

In financial terms, the currency black market now has a bid-ask spread of 42%; by comparison the spread at a really crappy exchange house exchanging U.S. dollars for Canadian ones may be about 3%. In non-financial terms, the black marketeers are gouging the public. (All in the name of stopping speculation. Sigh.)

The central bank created a third legal rate (Excel) this week by reopening trading of dollar-denominated Venezuela bonds through a trading system under its supervision. In some bond markets, this would be good for everyone, as the opacity of the bond market normally hurts buyers and sellers and helps brokers. However, in Venezuela, those blogs and Twitters meant the market was already pretty transparent. The Central Bank has so far had infinitesimal trading compared to the demand for dollars. People like me, who hold dollars, have no reason to sell into the Central Bank system, as we’ll get only 5 bolivars per dollar. I can get at least 50% more bolivars by selling money to friends or by selling loot hauled back from the States. Not that I’d ever think to do such a thing.

Hence, the birth of the fourth rate, a supposedly new way to give transparency to the black market:, Spanish for “” The site at this moment tells me to expect 8.9 bolivars for every dollar I sell. Call it the lettuce rate.

As explained at, the lettuce rate is based on a calculation that was popularized a couple years ago on blogs such as Inca Kola News and the incredibly popular and smart Caracas Chronicles. Divide the number of bolivars in circulation over the number of dollars in the Central Bank’s reserves. That gives an implicit number of bolivars that are backed by each dollar. If you think of the bolivar as nothing more than a few U.S. cents bearing pictures Venezuelan animals, with no value of its own, then this rate will tell you how much those cardenalitos are worth.

The lettuce rate has indeed acted as a bit of a magnet for the swap rate in the period of mid-2006 to the end of 2009. (That’s all the swap rate records I have handy. If you have this year’s swap rate figures archived, please send them to me. I will give you something pretty in return. I promise. Many thanks to Otto for his llel data — that’s a lot of data entry, dude. Lettuce rate calculated from figures from the Central Bank of Venezuela.)

Swap rate and lettuce rate

Swap rate and lettuce rate. The lettuce rate diverges from the swap rate by less than 20% about 71% of the time. Not a bad correspondence, but nothing to put money on.

The big problem with the lettuce rate is that it gives only the long-term, big-picture trend for a currency, without taking account of day-to-day changes in supply and demand. If some narcotrafficker decides to come in and flush $100 million or $1 billion into the Venezuela market (and other than narcotraffickers, I can’t think of who else would want that many black market bolivars), that SHOULD drive down the price of dollars for Venezuelans. But the lettuce rate won’t reflect that. This is why the bigshot currency traders poo-pooh this figure.

The lettuce rate was weaker than the legal swap rate all this year until the panic as the government moved to shut the permuta market. That is to say, this year, the lettuce rate gave estimates of the value of the bolivar that were more advantageous to people with dollars, and worse for people with bolivars, than what the market was offering. Who knows, maybe it’s just a function of how the market worked. On the chart, the swap rate was stronger in 95 weekly periods and weaker in 88, so there was no consistent trend.

In any case, the lettuce head isn’t the last word. It is a starting point, nothing more. If someone can and will give me 12 bolivars per dollar, that’s “the price.” And if they can only afford 5 and I accept that, that becomes “the price.” It’s a nice little service, but a head of lettuce is just a head of lettuce.


11 thoughts on “Salad days

  1. carne tremula

    I think keyword is haggling. I bought 5 kgs. of wired lettuce in 7. The seller was asking initially 8,5.

  2. Quico

    In non-financial terms, the black marketeers are gouging the public.

    Et tu, Setty???!

    I thought that whole thing about how “risk-taking is economically valuable” was your line!

    1. sapitosetty Post author

      Come on man, you know the answer. They aren’t profiting by taking a risk. They are profiting from information assymetry. They deserve a cut, but I’m glad to see the lettuce site reducing their ability to really screw people.

  3. Quico

    More broadly, I think the lettuce rate really has to be approached very, very carefully. The way it was originally explained to me by Alex Dalmady, it really should be seen more as a measure of the defensibility of a given exchange rate policy than as any kind of underlying equilibrium level.

    We should be clear that, although it has tended to work out that way in the last few years, there’s no real reason to expect a market exchange rate to track the lettuce rate, even in the long term: what you can say for sure, though, is that when faced with a speculative attack, a central bank that tries to defend an exchange rate that’s lower than the lettuce rate is going to run out of dollars. I mean, that’s just a mathematical certainty.

    (Which, by the way, tells you all you need to know about the credibility of the new supervise trading scheme at the central bank: you don’t need any analysis more sophisticated than long division to realize there just aren’t enough dollars around to defend a 5.3 rate.)

    The real issue, as you signal, is the opacity of the market now. Nobody I know thinks the lettuce rate is a proper proxy for the real value of a dollar in Bolivar terms, but you do have to use something. Anything is better than nothing.

    And that’s all the lettuce rate is: something, not much, but certainly not nothing.

  4. Larry

    A note about reputation and methodology:

    I have been publishing the paralell exchange rate, since December 2006, so I can hardly be a newcomer as you say. At that time, the price was based on the CANTV share prices, but after the nationalization of the telecom by Chávez, the exchange rate was based on the price of Venezuelan bonds. After the shut-down of the swap market, I have changed the methodology by using the Colombian peso exchange rate in Cúcuta vs the bolívar to calculate an “indicative” USD/BsF exchange rate.

    All the information about methodology is readily available on my website, which you could have found if you just bothered to investigate your statements.

    The historical data you can find here, data which I have collected since 2005 and is updated everyday according to the new methodology.



    1. sapitosetty Post author

      Larry – Thanks very much for commenting. Is related to lechugaverde? I really thought the lechuga rate was simply the ratio, as I trusted the sources I linked to in the story. Sorry I didn’t include a mention of your site, which I learned about later and have now used as my own reference. Keep in touch.

  5. Eduardo Gavotti

    Congratulations for this post.

    I’d just add a couple of comments. First of all, the reason why the “letucce rate” and the “swap rate” is -in some periods of time- correlated is because of the International Reserves impact on the supply of dollars in the parallel market, mainly through the issuances of bonds in USD, payable in VEF.

    With a black market rate the relationship breaks because the International Reserves no longer has an impact in the supply of dollars.

    Therefore, the black market is a seller’s market, because the price will depend the most on who has the dollars, and in the second term, on the urgency of the buyers.

    Second of all, using the relationship between M2 and International Reserves as a black market price gives an amazing arbitrage opportunity because that index moves independently from the demand or supply of dollars. So if I buy at any rate below 9 and sell at the M2/IR rate I ensure a lot of money for my pocket from the profit.

    I strongly recommend people not to use M2/IR as an indicator, because while the currency control continues, this index will rise nonstop at a pace that is probably much higher than the effective demand of dollars in the black market.

    I made a research for my economist dissertation about the parallel market for dollars in Venezuela from 1998 to 2010, right before the parallel market was declared illegal, but still has elements tha can be usefull to everyone who’s interested in this subject.


  6. Andres

    Just to say, has an upgrade of all the calculations. As matter of fact, they have 3 prices (2 to be used as reference, and 1 with the exact price in cash). Then, down the page, they have a lot of information on the peso (Colombia) price, and even down, botton of the page, the european price.

    And it´s look like the people (according to Alexa) are really going to the lechugas´s page. They even have a blog (, twitter ( and Facebook Page (

    They also have a mobile version:

    Keep the good work with your page!

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