Venezuela’s fiat currency, the bolivar, has lost nearly 40% in its exchange rate against the US dollar in a month. According to reports, the seasonal payments the government has to make and the government’s lack of liquidity to intervene in the currency market are part of the equation leading to this, however some also include crypto as part of the problem.
The Venezuelan coin is tossed
The Venezuelan currency, the bolivar, is losing its value at an alarming rate after enjoying a period of relative stability recently. The currency has lost almost 40% against the US dollar in parallel markets, and citizens are alarmed at the accelerated rate of devaluation. According to the popular price index Monitor dollareach dollar had a price of 9.05 bolivars on October 25. The exchange rate increased to 12.63 bolivars per dollar at No. 26.
There are several explanations for this plunge. According to analysts, this swing was expected due to the increased spending that is common in the Christmas season, a consequence of the increased liquidity placed in the market due to the bonuses and payments that the government and other companies provide to workers.
This is the part of the theory that the Venezuelan economist Jose Guerra formulated on this matter. War stated:
Demand for bolivars has fallen due to high inflation so when bolivars enter circulation, the public turns to buy goods and dollars to protect against inflation and devaluation.
Asdrubal Oliveros, head of Ecoanallitica, an economic research firm, also explains that the Central Bank of Venezuela could not intervene by injecting liquidity in the official exchange market. This is due to the lack of dollar inflows for different reasons, including sanctions that complicate the movement of these funds, which are mostly collected in cash for the sale of oil. In August, the Venezuelan currency also lost 35% of its value against the dollar in just one week.
However, in addition to the usual suspects, Oliveros also believes that there is a cryptic element that makes this situation more severe. Oliveros states that most of the parallel currency market, which does not depend on government intervention, was currently fueled by market makers who used crypto exchanges as a way to inject these funds into the country.
However, due to the continued downturn that the cryptocurrency market is facing and the lack of trust in centralized exchanges associated with the fall of FTX, one of the largest cryptocurrency exchanges in the world, these market makers have limited their exposure, leaving the market illiquid. and contributing to the scarcity of dollars.
The economist expects the exchange rate to continue to rise as these problems increase in the following days, qualifying the situation as a “perfect storm” for devaluation to continue to grow.
What do you think about the recent plunge of the Venezuelan bolívar against the US dollar? Tell us in the comments section below.
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