Venezuela: Parallel dollar plummets past VEF 175,000 per USD at the start of 2018
January 16, 2018
The bolivar traded in the parallel market continued to depreciate at a record pace at the start of 2018, reaching a new all-time high of 178,546 VEF per USD on 12 January. The result marked a staggering 46.0% depreciation from the same day of the previous month and a nearly 100% decline in value from the same day last year. The parallel dollar has plummeted in value since the second half of 2017 amid a vicious “inflation-depreciation” spiral, whereby higher inflation raises the demand for dollars. As more dollars are purchased, the black-market price of the dollar goes up, increasing the cost of imports and propelling inflation up even further.
Analysts participating in the LatinFocus Consensus Forecast expect the parallel dollar to remain under severe pressure this year. They project a non-official exchange rate of 2,183,052 VEF per USD at the end of 2018. In 2019, the panel sees the non-official exchange rate trading at 2,381,848 VEF per USD.
The Dipro exchange rate—the first tier of the official exchange rate system—remained unchanged at 10.00 VEF per USD on 12 January. The Dipro is controlled by the government and used exclusively to purchase essential goods, such as medicine and food; it can face devaluations when authorities deem it necessary. On 8 January, the Central Bank announced that it was considering a series of proposals to reform the current Dicom exchange rate system, but details were sparse. The government has not held a currency auction under the Dicom exchange rate, the second tier of the exchange rate system, since 31 August.
Amid a collapse of the parallel dollar, the government is moving forward with plans to launch a cryptocurrency backed by oil and gas reserves, first announced on 3 December. On 5 January, President Nicolas Maduro announced that 100 million units of the new currency—known as the petro—would be circulated, and that each unit of the petro would be pegged to Venezuela’s oil price. The currency is designed largely to circumvent economic sanctions imposed on the country by the United States, but it remains unknown if the country can even pull off such a feat. The success of cryptocurrencies relies heavily on clear rules and transparency; however, much remains unknown about the petro. Opposition politicians have declared the creation of the currency illegal.
Venezuela Exchange Rate Forecast
FocusEconomics panelists expect a change in the official exchange rate system by the end of next year and see the bolivar traded at the official rate to end 2018 at 20,427.0 VEF per USD. The panel sees the exchange rate ending 2019 at 448,944.0 VEF per USD.