Mérida, August 27, 2022 (venezuelanalysis.com) – The Venezuelan economy experienced a turbulent week with a strong devaluation of the national currency.
The relationship between the US dollar and venezuelan bolivar recorded unofficially by a number of stock traders fell from 6.95 on Monday to 9.33 on Thursday, forcing the Central Bank of Venezuela (BCV) to take emergency measures.
With a wide spread between the official exchange rate published by the BCV and the parallel, or “black market” rate, the country’s main financial institution has held additional currency auctions with public and private banks in an effort to supply more dollars and contain the depreciation of the bolivar.
According to unofficial reports, the Central Bank provided US$300 million in two separate operations. While the parallel rate fell 8.2% on Friday, the official rate was steadily devalued over the week, dropping from 6.18 bolivars to the dollar on Monday to 7.85 on Friday, a difference of 27% .
Financial authorities lifted exchange controls in 2019 as part of a program of liberal measures aimed at stabilizing the Venezuelan economy under sanctions US sanctions. Rather than setting the official marker, BCV provided foreign currency to bank-operated exchange tables and then established a “benchmark” rate based on transaction volume and average buy/sell prices.
The bolivar continued to devalue before stabilizing at the end of 2021, but the official and parallel markers were virtually even. The exchange rate hovered between 4.5 and 5 for several months before the sudden surge in recent weeks. However, stability has necessitated an ever-increasing supply of foreign currency from the BCV, with so-called “foreign exchange interventions” totaling $3 billion this year.
Currency devaluation had an immediate impact on the cost of living. The Maduro government has raised the minimum wage in March to around $30, but purchasing power, measured in USD, has since fallen 44%. Recent events have raised fears of a new inflationary spiral after a monthly decline inflation has been measured in single digits for 10 of the past 11 months.
The sudden rise in the exchange rate this week also sparked controversy as customers began to denounce companies for pricing in US dollars and using the parallel marker.
Venezuelan Attorney General Tarek William Saab urged “speculators” to adhere to the figure published by the BCV and promised “exemplary sanctions” against private players operating with the black market figure. However, retailers could avoid any problems by simply adjusting bolivar prices.
Social media users shared evidence over the week of stores closing or removing merchandise to adjust prices.
For his part, President Nicolás Maduro called on the people “not to let companies rob them with the parallel dollar”. He also warned traders to stick to the official exchange rate, reminding them that “it follows the rules of the market” and “worked well”.
“Some want to sabotage Venezuela’s economic recovery,” Maduro said in a televised address on Thursday. “Enough speculation, let’s fight for macroeconomic stability.”
The Caribbean nation recorded about 4 percent GDP growth in 2021, bucking a seven-year trend in which the economy has contracted by more than 70% according to unofficial measures. The crisis was triggered by the fall in oil prices before being greatly aggravated by US sanctions.
The Central Bank revealed this week that Venezuela’s economy has recorded four successive quarters of double-digit growth, with the first quarter of 2022 registering a 17% increase compared to the same period last year.
Several financial institutions have predicted double-digit GDP growth for the South American country this year, with Credit Suisse to predict a 20 percent increase.
However, the economic outlook remains severely constrained under the weight of a american blockade targeting virtually all sectors and in particular Oil industry. Analysts pointed out that a pick-up in retail activity has widened the inequality gap.
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