Venezuelan Currency Devaluation Goes into Effect

February 14, 2013

by AQ Online

After the Venezuelan government announced its intention to devalue its bolívar currency late last week, the 32-percent shift in its exchange rate—from 4.3 to 6.3 bolívars to the dollar—went into effect yesterday. It is Venezuela’s fifth devaluation in nine years; the previous devaluation occurred in January 2010.

Yesterday, the bolívar reached its lowest value, having declined 18 percent in unregulated black-market trading since last week’s announcement. As roughly 70 percent of products consumed in Venezuela are imported, following last week’s announcement many Venezuelans lined up to purchase electronic appliances and airline tickets in order to protect themselves from the price increases that went into effect yesterday.

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On the black market, bolivars are being traded for more than three times the new official rate, with dollars selling for over 20 bolívars this week. Despite sitting on the world’s largest petroleum reserves, Venezuela’s economy faces an inflation rate of 22 percent—which yesterday’s devaluation was intended to curb. Yesterday’s economic measures also included the elimination SITME—the Spanish acronym for a state-owned bond trading system that sold dollars at a second-tier rate—and that the government is still exploring alternative measures to obtain dollars in SITME’s stead.

At issue is the Venezuelan government’s struggle to meet heavy demand by importers for dollars. Vice President Nicolás Maduro has said that the government can meet such demands by way of its oil profits—a notion that is doubted by experts such as Universidad Central de Venezuela economics professor José Guerra.

Alberto Ramos, an economist at Goldman Sachs, believes that this “devaluation was long overdue, as since the last devaluation headline inflation rose by 98 percent.” Conversely, former Venezuelan Industry and Trade Minister and current AQ editorial board member Moisés Naím sharply criticized the move as “desperate.”

Tags: Venezuela

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