Venezuela: Bolivar nosedives to all-time low in November
November 4, 2016
The bolivar has depreciated sharply in the parallel market since late September. On 4 November, the bolivar traded in the parallel market at 1,758 VEF per USD, an all-time low. The result marked a 38.3% depreciation from the same day of the previous month and a massive 54.8% depreciation over the same day last year. The parallel dollar has shed 52.6% of its value since the start of the year. The depreciation of the bolivar has coincided with an escalation of the country’s political crisis and an increase of the money supply in the economy.
Panelists participating in the LatinFocus Consensus Forecast project a non-official exchange rate of 1,198 VEF per USD by the end of 2016. In 2017, the panel sees the non-official exchange rate depreciating further to 1,804 VEF per USD.
Meanwhile, the Dipro exchange rate—the first tier of the exchange rate system—remained unchanged at 10.00 VEF per USD on 4 November. 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.
The free-floating Dicom—the second-tier of the system—has remained broadly stable since early July, after having depreciated continuously since its introduction in March. On 4 November, the Dicom traded at 657.7 VEF per USD. The result represented a 0.2% appreciation from last month.
Analysts remain highly skeptical regarding the effectiveness of the new exchange rate system. It is very unlikely that the Dicom will alleviate shortages of goods and services because the government still maintains price controls and there are numerous legal hurdles to imports. In addition, doubts persist about whether the government will commit to a floating exchange rate regime. The government has never allowed any of the three previous exchange rate systems implemented since 2013 to float freely and be set by market forces.