Despite successive “monetary interventions” by the Venezuelan Central Bank, devaluation has continued apace.
By Venezuelanalysis
Dec 6, 2022
Venezuela’s bolívar (BsD) is going through a fast devaluation despite government efforts to halt it.
The national currency has seen the exchange rate against the US dollar increase by nearly 35 percent since November 1, going from 8.57 BsD per USD to 11.86. The decrease severely hits working-class wages and pensions.
The Venezuelan Central Bank (BCV) has rushed to inject a reported US $190 million into so-called exchange tables run by public and private banks over the last week in an attempt to stop the depreciation cycle. However, it has not yielded effects, with more monetary interventions expected in the coming days.
A black market or parallel rate, which combines several unofficial markers, has constantly risen in recent months. The “official” exchange rate, set by the Venezuelan Central Bank as a pro-rated average of the exchange table operations, has followed suit.
The gap between both markers, currently at around 22 percent, has historically offered lucrative opportunities for short-term speculation. With a constant expectation that the exchange rate will only go up, private actors sell US dollars to retailers or individuals who want to get rid of bolívars, only to turn around and purchase cheaper dollars supplied by the Central Bank.
Despite threats to crack down on “speculators,” authorities so far have only repeated calls for businesses to adhere to the official exchange rate. However, retailers can simply bypass any issues by raising prices directly in bolívars.
Venezuela’s currency had been relatively stable since a monetary reconversion in October 2021 before devaluation began to accelerate in the second half of 2022. The BCV has supplied over $3 billion in forex interventions this year.
Since the last wage increase in March, the Venezuelan currency has lost some two-thirds of its value against the US dollar. The minimum wage, which was worth some $30 at the time, is now down to $10.6.
The consistent currency devaluation has raised fears of a new inflationary spiral in the Caribbean nation. After hitting seven-year lows in the early part of the year, monthly inflation rates have risen in recent months. According to the BCV, prices rose by 28 percent in September, the highest such mark in 18 months, before coming down to 6.2 percent in October.
The November figure had not been published at the time of writing. Accumulated, 12-month inflation currently stands at 156 percent.
The currency struggles come amidst a period of economic recovery for the country, which is expected to have one of the highest growth rates in the hemisphere. Venezuela’s GDP shrunk for six consecutive years before rising by four percent in 2021.
Venezuelan Vice President Delcy Rodríguez stated that the nation’s economy is set to grow by double digits in 2022, and that forecasts for 2023 are positive as well.
The Nicolás Maduro government has resorted to increasingly liberal measures in recent years in efforts to stabilize the economy and jumpstart growth. Reforms have included scrapping price and forex controls, as well as privatizations and bigger incentives for private sector investment. A rise in retail activity has widened inequality.
Analysts and policymakers have debated resuscitating some regulatory instruments but the Maduro administration has not taken a position on the matter. Last week, the country’s consumer protection watchdog published a maximum price list in US dollars for 40 foodstuffs before quickly taking it down.
The Venezuelan economy remains heavily hampered by wide-reaching US sanctions that have targeted a number of sectors and especially the oil industry. Washington granted a limited license to Chevron in late November. However, the measure is expected to yield little benefit for the country’s budget.
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