Venezuela’s largest bill of 100 bolivars is now worth less than a U.S. quarter to money-changers after a plunge in the currency’s black-market value.
The bolivar fell 25 percent on the black market last week to 423 per dollar before strengthening to 413 today, according to dolartoday.com, a website that tracks the rate on the Colombian border.
That’s 66 times the primary official rate of 6.3 bolivars per dollar, and means the 100-bolivar bill fetches about 24 U.S. cents from illegal street dealers.
Venezuela has maintained strict currency controls since 2003, pushing people and businesses to the black market when they can’t obtain government approval to purchase dollars at the legal rates. The country has the fastest inflation in the world; with hard goods such as autos and real estate in short supply, people want dollars to protect their savings.
“The issue at hand is expectations,” Asdrubal Oliveros, director of the Caracas-based consultancy Econanalitica, said in a telephone interview.
“People continue to demand dollars, so the black-market rate continues to rise based upon that demand.” The bolivar has weakened about 80 percent in street markets in the past year.
The central bank didn’t respond to a request for comment on the black-market rate. Beyond Irrationality Jesus Faria, a pro-government congressman and member of the House finance committee, said Monday morning on the Globovision television network that the plunge in the black-market rate has “nothing to do with reality.”
“There’s a vicious attack against the national currency that has reached levels that exceed any kind of irrationality,” he said. “It does not reflect any type of supply and demand in the free market.”
The bolivar’s dwindling value leaves many Venezuelans stuffing their pockets with wads of cash, since stacks of bills are often required for a routine trip to a restaurant or supermarket. Barclays Plc analysts Alejandro Arreaza and Alejandro Grisanti wrote in a May 22 report that the unofficial rate could reach 600 bolivars per dollar by the end of the year.
Days earlier, Barclays changed its rating on Venezuelan dollar debt to neutral from overweight. No Cars The country’s inflation rate stood at a reported 69 percent in December, and foreign reserves fell to a 12-year low of $17.7 billion on May 21.
“If the authorities do not change their policy, there could be further pressures in the FX market,” the analysts wrote. People are buying dollars partly because of a scarcity of hard goods that could serve as a store of value, according to Oliveros.
“You want to buy a car? There aren’t any. You want to buy an apartment? You can’t afford one. Basic products aren’t available,” he said. “The only refuge that people have is buying dollars, and because of that, the demand doesn’t stop.”
Venezuela’s government is studying ways to simplify its multi-tiered currency system, Faria said today on Globovision, adding that the government had no plans to dollarize the economy.
“Unifying the exchange rates would be impossible,” Faria said.
“The idea is to simplify it and move to something much more manageable. Something like a controlled exchange rate in addition to a free-floating rate. But under these conditions, that would be a shock, and that can’t happen either.”
bloomberg.com
The bolivar fell 25 percent on the black market last week to 423 per dollar before strengthening to 413 today, according to dolartoday.com, a website that tracks the rate on the Colombian border.
That’s 66 times the primary official rate of 6.3 bolivars per dollar, and means the 100-bolivar bill fetches about 24 U.S. cents from illegal street dealers.
Venezuela has maintained strict currency controls since 2003, pushing people and businesses to the black market when they can’t obtain government approval to purchase dollars at the legal rates. The country has the fastest inflation in the world; with hard goods such as autos and real estate in short supply, people want dollars to protect their savings.
“The issue at hand is expectations,” Asdrubal Oliveros, director of the Caracas-based consultancy Econanalitica, said in a telephone interview.
“People continue to demand dollars, so the black-market rate continues to rise based upon that demand.” The bolivar has weakened about 80 percent in street markets in the past year.
The central bank didn’t respond to a request for comment on the black-market rate. Beyond Irrationality Jesus Faria, a pro-government congressman and member of the House finance committee, said Monday morning on the Globovision television network that the plunge in the black-market rate has “nothing to do with reality.”
“There’s a vicious attack against the national currency that has reached levels that exceed any kind of irrationality,” he said. “It does not reflect any type of supply and demand in the free market.”
The bolivar’s dwindling value leaves many Venezuelans stuffing their pockets with wads of cash, since stacks of bills are often required for a routine trip to a restaurant or supermarket. Barclays Plc analysts Alejandro Arreaza and Alejandro Grisanti wrote in a May 22 report that the unofficial rate could reach 600 bolivars per dollar by the end of the year.
Days earlier, Barclays changed its rating on Venezuelan dollar debt to neutral from overweight. No Cars The country’s inflation rate stood at a reported 69 percent in December, and foreign reserves fell to a 12-year low of $17.7 billion on May 21.
“If the authorities do not change their policy, there could be further pressures in the FX market,” the analysts wrote. People are buying dollars partly because of a scarcity of hard goods that could serve as a store of value, according to Oliveros.
“You want to buy a car? There aren’t any. You want to buy an apartment? You can’t afford one. Basic products aren’t available,” he said. “The only refuge that people have is buying dollars, and because of that, the demand doesn’t stop.”
Venezuela’s government is studying ways to simplify its multi-tiered currency system, Faria said today on Globovision, adding that the government had no plans to dollarize the economy.
“Unifying the exchange rates would be impossible,” Faria said.
“The idea is to simplify it and move to something much more manageable. Something like a controlled exchange rate in addition to a free-floating rate. But under these conditions, that would be a shock, and that can’t happen either.”
bloomberg.com
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