Venezuela: Parallel dollar tumbles past 600 VEF per USD
July 9, 2015
The bolivar traded in the parallel market’s downward trajectory accelerated in recent weeks and fell past 600 VEF per USD, a new record low, on 9 July. The non-official exchange rate traded at 611.9 VEF per USD, which represented a 47.2% depreciation over the same day of the previous month and a substantial 771.1% depreciation over the same day of the previous year.
The parallel dollar has tumbled rapidly this year as low oil prices have hindered the government’s ability to supply dollars through its complex three-tiered exchange rate system. Oil revenues represent around 95% of Venezuela’s dollar income and the sharp drop in prices has increased pressure on government finances. Moreover, recession and runaway inflation combined with the fall in oil prices have pushed Venezuela into an economic crisis. Following 9 July’s record low, the bolivar traded in the parallel market remained broadly stable in the following days. LatinFocus Consensus Forecast panelists are still taking the latest exchange rate movements into account and project a non-official exchange rate of 456.0 VEF per USD by the end of this year. In 2016, the panel sees the non-official exchange rate depreciating to 482.5 VEF per USD.
Meanwhile, the Simadi exchange rate, the third tier of Venezuela’s exchange rate system, has remained broadly stable despite the parallel dollar’s weakening. On 9 July, the exchange rate from the Simadi system traded at 197.1 VEF per USD, which represented a 1.3% appreciation over the same day of the previous month. The Simadi system was introduced in February in an attempt to ease black market activity; however, little has changed since its introduction and local reports suggest that very little volume has been available in the system.
Regarding the second tier of Venezuela’s exchange rate system, after over six months of inactivity, the Central Bank held an auction under the Sicad mechansim in June. The Central Bank auctioned USD 350 million to auto part importers at an exchange rate of 12.8 VEF per USD, which represented a 6.7% depreciation over the last auction held in October. The auction followed large-scale transportation strikes and protests led by taxi and bus drivers, over their inability to maintain and service their vehicles.
As expected, the official exchange rate remains unaltered at 6.30 VEF per USD. That said, LatinFocus Consensus Forecast panelists expect a devaluation in the official rate this year. The panel sees the official exchange rate ending 2015 at 24.80 VEF per USD. Next year, the panel expects the bolivar to weaken to 46.33 VEF per USD.