Venezuela: Parallel dollar's unabated fall hits new record low days before key elections
December 3, 2015
After falling to a record-low in early October, the bolivar traded in the parallel market tumbled even further throughout the month of November and the non-official exchange rate tallied 893.8 VEF per USD on 30 November. The result represented a 13.7% depreciation over the same day of the previous month and a massive 486% depreciation over the same day of the previous year. The parallel dollar has lost 426% of its value this year largely due to intense dollar shortages and an increase in the supply of bolivars. Following the new historical-low that the currency hit on the last day of November, the depreciating trend continued in the run-up to the legislative elections on 6 December. In the first week of December, the parallel dollar soared passed 900.0 VEF per USD, a new record-low.
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 the fall in oil prices have pushed Venezuela into a full-blown economic crisis. Moreover, the government has a number of debts due throughout next year which will likely intensify the current dollar shortage if oil prices remain low and the exchange rate system unchanged.
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 931.5 VEF per USD by the end of 2015. In 2016, analysts see the non-official exchange rate depreciating to 1,796 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 30 November, the exchange rate in the Simadi system was 199.6 VEF per USD, which represented a slight 0.1% depreciation over the same day of the previous month. The Simadi system was introduced in 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.