Venezuela Exchange Rate September 2016

Venezuela

Venezuela: Parallel dollar weakens slightly, modification of exchange rate system is still widely expected

September 8, 2016

The bolivar traded in the parallel market regained some strength after crossing the 1,200 VEF per USD threshold and hitting an all-time low high on 10 March—the same day that the two-tier exchange rate system was introduced. In June, however, the bolivar experienced some volatility and a short period of depreciation from early to mid-June was followed by a renewed period of gradual appreciation. Thereafter, since August, the parallel dollar has depreciated slightly again. On 6 September, the bolivar traded in the parallel market at 1,022 VEF per USD. The result represented a 1.8% depreciation over the same day of the previous month and a sharp 44.9% depreciation over the same day last year. The parallel dollar has lost 22.6% of its value since the start of the year.

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 1,450 VEF per USD by the end of 2016. In 2017, the panel sees the non-official exchange rate depreciating further to 1,733 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 6 September. According to the government, the Dipro is used exclusively to purchase essential goods such as medicine and food products and can face devaluations if 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 6 September, the Dicom traded at 647.1 VEF per USD. The result represented a 0.7% depreciation over the same day of the previous 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. The government has never allowed any of the three previous exchange rate systems that have been implemented since 2013 to float freely and be set by market forces.

The FocusEconomics panel remains confident that the Venezuelan government will modify the exchange rate system before the year-end. For 2016, four panelists expect the current exchange rate system to remain unchanged, while the remaining eight panelists that provided forecasts expect a devaluation in the official exchange 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 193.5 VEF per USD. Next year, the panel see the bolivar at Dipro exchange rate trading at 995.3 VEF per USD.


Author: Teresa Kersting, Economist

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Venezuela Exchange Rate September 2016 0

Note: Official and non-official exchange rate of Venezuelan bolivar (VEF) against U.S. dollar (USD).
Source: Thomson Reuters Datastream, Venezuela Central Bank (BCV) and local sources.


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