Venezuela: Parallel dollar stabilizes at near-record lows, Dicom continues to depreciate in April
May 11, 2016
After crossing the 1,200 VEF per USD threshold in the parallel market and hitting an all-time low on 10 March—the same day that the new two-tier exchange rate system was introduced—the bolivar appreciated marginally and stabilized. On 11 May, the bolivar traded in the parallel market at 1,113 VEF per USD. The result represented a 2.5% appreciation over the same day of the previous month, but a staggering 305.8% depreciation over the same day last year. The parallel dollar has lost 33.6% of its value since the start of the year. The slight appreciation of the parallel dollar reflects a normal response in the foreign exchange market following a strong depreciation of the official exchange rate.
Panelists participating in the LatinFocus Consensus Forecast see the parallel dollar continuing its downward trajectory this year and project a non-official exchange rate of 2,016 VEF per USD by the end of 2016. In 2017, the panel sees the non-official exchange rate depreciating to 3,093 VEF per USD.
Meanwhile, the Dipro exchange rate—the first tier of the new exchange rate system—remained unchanged at 10.00 VEF per USD on 11 May after it was devalued by 37.0% in February. According to the government, the Dipro will be used exclusively to purchase essential goods such as medicine and food products and can face further devaluations if authorities deem it necessary.
The free-floating Dicom—the second-tier of the new system—has depreciated notably since its introduction on 10 March. On 11 May, the Dicom traded at 410.7 VEF per USD. The result represented a sharp 34.2% depreciation over the same day of the previous month. With the Dicom, the government aims that market movements of supply and demand will improve liquidity and correct the inconsistencies that plagued the previous three-tier system.
Analysts remain highly skeptical regarding the effectiveness of the new exchange rate system because they have doubts about whether the government will commit to a floating exchange rate. Venezuela has made similar pledges in the past that did not materialize and has never allowed the exchange rate to be set by market forces. The Dicom is the country’s fourth currency exchange system that was intended to be free-floating since 2013. Moreover, 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 for imports.
The FocusEconomics panel is evenly split on whether the Venezuelan government will modify the exchange rate system before the year’s end. For 2016, six panelists expect the current exchange rate system to remain unchanged while the remaining six panelists expect a devaluation in the official rate. By the end of 2017, all panelists foresee a change in the currency exchange rate system. On average, panelists expect the bolivar at the Dipro exchange rate to end this year at 49.93 VEF per USD. Next year, the panel see the bolivar at Dipro exchange rate trading at 444.13 VEF per USD.