What's mercaDolar?

In a nutshell

mercaDolar provides financial services for the Venezuelan community by enabling an open market in which private parties can securely transact between the Venezuelan Bolivar (VEF) and the United States Dollar (USD).

A little about Venezuela

Venezuela is a beautiful country located on the north shore of South America. Its pleasant year-round weather, intrinsically happy people, and abundant economic opportunities once embraced immigrants from all around the world, much like Europe and the United States do today. However, in recent years, Venezuela has witnessed a sharp economic decline. Aggravating the economic difficulties of the country is a rigid and often corrupt system of currency exchange controls imposed by the local government, labelled as "byzantine" by the Economist in 2014. In short, the Venezuelan government arbitrarily fixes the value of the Venezuelan Bolivar, reserving the exclusive right to trade foreign currencies. The theory is that the government is to supply the market in a tiered system, by which the price of a U.S. Dollar varies according to the intended use. For example, requests for foreign currency with the intent to import medicines are fulfilled at a lower exchange rate than those for capital investments, or say, a Disney vacation.

The reality, because of many factors, is the government is largely unable to fulfill the demand for foreign currency under their pricing scheme. As a result, a parallel market has been in practice for many years in Venezuela, within which private individuals transact at free-market prices, based largely around an exchange rate recommended by popular websites such as Dolar Today, which can be over 4 times higher than the rates imposed by the local government. As is to be expected, most most day-to-day trading volume thus occurs outside of the Venezuelan government's system.

An example

To cite a classic situation, let's say a Venezuelan living abroad wishes to send money - USD $100 - to a family member in Venezuela. Let's keep in mind that at the time of writing the exchange rates from the government for such an operation would be BsF 257 per USD, and the parallel market rate is about BsF 850. Thus there are two options - first, perform a wire transfer - either bank-to-bank or via a traditional MSB such as Western Union or MoneyGram, and using the parallel market.

With a wire transfer, the beneficiary in Venezuela would receive BsF. 25,700. Through the parallel market, about BsF 85,000 would be received. It's not difficult to imagine which rate our friend would prefer.

Our sender would "spread the word" among family, friends, and associates about needing to sell $100 at BsF 850. With some luck, a trustworthy buyer may be in this market and find the offer attractive. Othertimes a bit of negotiation on the rate may come into play. Often, there will be several layers of indirection between buyer and seller, as word spreads and someone is found to buy the money. This process can be amazingly quick, or it can take days. Once the agreement is in place, the seller transfers to the buyer's U.S. bank account and the buyer transfers to the beneficiary's Venezuelan bank account, in a pre-agreed order. In between, everybody's favorite deities are often summoned for good luck.

Our simple example illustrates a retail transaction. It is not difficult to imagine how this might become a stressful affair for larger amounts, for example when a factory owner needs access to foreign currency to purchase raw materials and equipment, or real estate is being sold.

So, what's the problem?

The most obvious problem with this informal system is that, because the transaction occurs between two individuals with no referee or institutional backing, the possibility of fraud is high. The typical transaction occurs within an honor system, which exposes both to unexpected delays, unsavory surprises, or worse. Cash transactions may alleviate this problem, however, it introduces the possibility of a crime such as a kidnapping, theft or fake currency, both constant worries in Venezuela.

A second challenge has to do with availability. One person's ability to trade is directly proportional to the spread of his or her social network, and the existence of someone within that network who is in the market for a trade with those characteristics at that point in time.

Additionally, there is the issue of transparency. While the true intent of the websites publishing street prices for foreign currency may well be benign, the fact remains that the source data by which their rates are calculated is unknown.

Enter mercaDolar

mercaDolar's objective is to empower the Venezuelan community with the ability to transact freely and safely. To achieve this objective, our work is two-fold: one, we need to develop and cultivate a dynamic market in which opportunities for trade can be both advertised and discovered; and two, we must ensure the proper execution of each and every transaction that initiates through our platform.

We believe that in order to fully develop the market, creating conditions of trust is paramount. We address this frontally by operating solely within U.S. jurisdiction, where the trade of Venezuelan Bolivars and U.S. dollars is perfectly legal and bind ourselves to clear, public, and explicit terms of service. We are registered with FinCEN federally, and have forged strategic alliances with partners specializing in Anti-Fraud, Anti-Money Laundering, and Know Your Customer procedures - on par with any leading online financial system - in order to follow the strict compliance and reporting rules in effect to ensure the integrity of our user base and the longevity of our platform. Additionally, we are happy to comply with the Venezuela Defense of Human Rights and Civil Society Act of 2014, a law passed by the U.S. Congress explicitly prohibiting certain individuals accused of human rights violations from participating in the United States banking system.

By applying the principles of escrow, we guarantee a buyer that their currency is available for them once they fulfill their end of the contract. At the same time, we guarantee the seller that their money is in good hands while the buyer deposits to them or their designated beneficiary in local currency. mercaDolar provides the communication, transaction, and reporting platform in between, earning a small percentage-based commission for this service.

Stories from our clients

Venezuelans are colorful people. We never miss an opportunity to chat and tell you our story - and of course, comment on yours. We love picking up the phone when someone calls with a question, because it's almost never just work. We gotta hear the story. There's Vicente B. in Mérida, a retired school teacher who, rather than sit and watch his retirement funds wither away with Venezuela's >150% yearly inflation rate, prefers to convert his liquid assets into currencies which hold their value better over time, such as the Euro or USD. He's been doing this for a while, but it can sometimes take months before he finds somebody trustworthy to buy foreign currency from. He's happy he found us.

There's Mrs. Arley from Maracaibo. She uses mercaDolar to buy U.S. Dollars which she then uses to purchase critically unavailable medication in Panama and Canada for her son, who is ill. There's Gustavo, who owns a small electronics shop in downtown Caracas, and finding himself unable to obtain the currency he needs from the government to replenish his inventory and keep his store open, comes to mercaDolar often.

Then there's us. Yes, we at mercaDolar use and rely on our own platform to send money to our friends and family back home. In fact, this is how mercaDolar was born – out of personal need and a shared desire to create a trusted resource for others facing the same problems.

Questions or comments?

We're happy to answer.