The rise in the price of the dollar in Venezuela

The dollar rose again in Venezuela. In the past five days, the bolivar has lost a fifth of its value against the US currency, a rally that has set off alarm bells in the bloated country.

The official rate jumped from 6.18 bolivars to the dollar last Monday to 7.85 bolivars today, with the national currency depreciating by 21.07%.

The price in the parallel market – in a sign in the midst of exchange controls in place since 2003, yesterday it crossed the barrier of 9 bolivars per dollar, retreating in the last hours, after the “exchange intervention”, as the central bank calls for an infusion of currencies into the state-made market to contain the fees .

Retired Soleda Romero, 72, felt a hit in her pocket. “All this is very expensive. He’s crying.”

With foreign exchange still pumping into banks, President Nicolás Maduro’s government has maintained some price stability in recent months, after the bolivar plunged 76% in 2021 and by more than 95% each year between 2018 and 2020.

Although Venezuela still has one of the highest inflation rates in the world, price growth has slowed, in an economy where the dollar began circulating freely in 2019, 15 years later.

Venezuelan inflation in the first half was 48.4%, according to the country’s Central Bank (BCV). It was 130,000% in 2018, 9585% in 2019, 3,000% in 2020, 686% in 2021. A rising dollar is generating tension, as Venezuelans seek a safe haven for their money, increasing the demand for foreign exchange.

It’s a self-fulfilling prophecy, commented Jose Manuel Puente, a professor at the Institute of Graduate Management Studies (Iesa): “I buy dollars because the bolivar will go down, and it will go down because I buy dollars.”

– More bolivars, less dollars –

Experts disagree. The state last week honored expired labor commitments after mass protests by civil servants, but it did so by issuing bolívars, thus reducing the supply of dollars in the foreign exchange market. The system for allocating foreign currency to banks has also changed, with auctions replacing direct shares for sale.

“There was an expansion of the monetary base, coinciding with a change in policy,” noted Henkel Garcia, director of Albusdata. This base, which includes the bolivar mass in circulation and in the reserves of the central bank, grew by 36.2% last week.

– Overrated –

Experts like José Manuel Puente argue that with “artificially pegging prices”, the bolivar is overvalued, which sooner or later will translate into an unsustainable exchange rate.

This situation has led to a sharp rise in prices in dollars, from 40% in 2021 and 34% in the first half of 2022, estimates the consultancy Ecoanalitica.

Without disclosing the values, BCV has admitted that it has made forty “interventions” this year. This was possible, according to Boente, due to the “petrodollar shot” caused by the rise in crude oil prices due to the war in Ukraine, despite the crisis in the Venezuelan oil industry, whose production is 700,000 barrels per day, five times. Less than 15 years ago.