Venezuela: Parallel dollar's depreciating trend continues and soars past 1,000 VEF
February 12, 2016
After crossing the 900 VEF per USD threshold and hitting an all-time low days prior to the legislative elections on 6 December, the Bolivar appreciated, albeit marginally. From mid-January, however, the Bolivar started to depreciate notably and crossed the 1,000 VEF threshold for the first time ever in the first week of February. On 12 February, the Bolivar traded in the parallel market at 1,026 VEF per USD and hit a new all-time low. The result represented a 19.4% depreciation over the same day of the previous month and a whopping 476% depreciation over the same day of the previous year. The parallel dollar has lost 23.1% of its value this year largely due to intense dollar shortages and an increase in the supply of bolivars.
At the heart of the parallel dollar’s rapid freefall is the country’s dire financial situation combined with a convoluted three-tier exchange rate system. Oil revenues represent around 95% of Venezuela’s dollar income and low oil prices have limited the government’s ability to supply dollars to this system. Recession and runaway inflation combined with falling oil prices have pushed Venezuela into a full-blown economic crisis. Moreover, the government has a number of debts due throughout this year, which will intensify the current dollar shortage because oil prices are continuing to tumble and hit a record low in January.
The economic analysts we polled for this month’s LatinFocus Consensus Forecast see the parallel dollar continuing its downward trajectory this year and project a non-official exchange rate of 1,579 VEF per USD at the end of 2016. In 2017, analysts see the non-official exchange rate depreciating to 1,991 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 12 February, the exchange rate in the Simadi system was 199.9 VEF per USD, which remained unchanged over the same day of the previous month. The Simadi system was introduced last February in an attempt to ease black market activity; however, not much has changed since its introduction and local reports suggest that very little volume has been available in the system. The last auction held on the Sicad mechanism, the second tier of Venezuela’s exchange rate system, was held at 13.5 VEF per USD in September.