Venezuela: Differential between parallel market and Dicom rate remains large despite Dicom devaluation
June 8, 2017
On 6 June, the bolivar traded in the parallel market at 6,481 VEF per USD. The result marked a steep 21.2% depreciation from the same day of last month and an all-time low. The parallel dollar shed 51.2% of its value since the start of the year and a massive 84.6% from the same day last year.
The bolivar traded in the parallel market has depreciated sharply in the second quarter, continuing the depreciation since Q4 2016 due to a reduction in the Central Bank’s reserves requirement and an increase in monetary financing to PDVSA. The latest political developments at home partly explain the massive fluctuations in the currency in recent weeks.
Panelists participating in the LatinFocus Consensus Forecast see continued pressure on the parallel dollar and project a non-official exchange rate of 7,403 VEF per USD by the end of 2017. In 2018, the panel sees the non-official exchange rate trading at 6,274 VEF per USD.
Meanwhile, the Dipro exchange rate—the first tier of the official exchange rate system—remained unchanged from the same day of last month at 10.00 VEF per USD on 6 June. According to the government, the Dipro is used exclusively to purchase essential goods such as medicine and food products and can face devaluations when authorities deem it necessary.
On 31 May, the Central held its first auction under a new system for the free-floating Dicom, the second tier of the exchange rate system. On that day, the Dicom traded at 2,007 VEF per USD, marking a 63.8% devaluation compared to the previous day. On 6 June, the Dicom was trading at 2,158 VEF per USD. The result marks a 66.7% depreciation from the same day last month and 68.8% since the start of 2017. The Dicom has lost 74.6% of its value from the same day in 2016.
The devaluation was part of government plans aimed at improving access to dollars in the economy. The new system it revealed in March envisages two weekly auctions instead of seven with a pre-established amount. The most recent devaluation, however, is not expected to have any meaningful impact since it doesn’t address the structural problems plaguing the Venezuelan FX market, especially related to currency controls. Analysts consider that the latest move will fail to improve liquidity and will therefore become another unsuccessful attempt to reform the convoluted exchange rate system.