Venezuela: Central Bank devalues bolívar; liberalizes FX transactions
May 14, 2019
The Venezuelan bolívar soberano was sharply devalued, yet again, by the Central Bank (Banco Central de Venezuela, BCV) on 22 April. It brought the official exchange rate roughly up to par to that of the black market, to 5,200 VES per USD from around USD 4,100 just a few days prior. Despite the adjustment, however, the gap between the two widened in the following days. On 10 May, although the official DICOM exchange rate was largely stable at 5,203 VES per USD, the parallel market rate fell to 5,790 the same day. Overall, the bolívar has continuously lost value since its introduction through the monetary reconversion last August, undergoing a massive devaluation of over 95% since then. In addition, the bolivar is over 85% weaker than at the beginning of the year.
Meanwhile, on 2 May, the BCV announced the elimination of currency exchange controls, aiming to increase the amount of foreign currency that is bought and sold in the country. Under the new policy, banks would set up and run exchange tables, which would be utilized by individuals, firms or other financial institutions for their foreign currency transactions. Banks would then be required to report on a daily basis the volume of transactions and average exchange rates, which the Central Bank would then report to the wider public. That said, questions remain over the specifics of the policy’s application. Details such as how the supply and demand of hard currency would be regulated, for instance, have yet to be released.
Author: Javier Colato, Economist