Venezuela’s fiat currency, the bolivar, has lost nearly 40% against the US dollar in a month. According to reports, the seasonal payments that the government has to make and the lack of liquidity for the government to intervene in the foreign exchange market are part of the equation that leads to this, but some also include crypto as part of the problem.
Venezuelan currency takes a dive
The Venezuelan currency, the bolivar, has lost 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, with citizens alarmed by the accelerated pace of devaluation. According to the popular price index Monitordollar, each dollar had a price of 9.05 bolívares on October 25. The exchange rate increased to 12.63 bolívares per dollar at No. 26.
There are several explanations for this drop. According to analysts, this slump was expected due to the high consumption that is common during the Christmas season, a consequence of the increased liquidity injected into 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 has formulated on this question. Guerra stated:
Demand for bolivars has fallen due to high inflation, so when bolivars go into circulation, the public goes to buy goods and dollars to hedge against inflation and devaluation.
Asdrubal Oliveros, head of Ecoanallitica, an economic analysis firm, also explains that the central bank of Venezuela has not been able to intervene by injecting liquidity into the official foreign exchange market. This is due to the lack of dollar supply for various reasons, including sanctions that hinder 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.
But aside from the usual suspects, Oliveros also believes that there is a crypto element that makes this situation more serious. Oliveros states that most of the parallel currency market, which does not rely on government intervention, was currently fed by market makers using cryptocurrency exchanges as a way to inject these funds into the country.
Due to the ongoing downward trend facing the cryptocurrency market, and the lack of confidence in centralized exchanges linked to 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 dollar scarcity.
The economist expects the exchange rate to continue to rise as these issues deepen over the next few days, qualifying the situation as a “perfect storm” for the devaluation to continue growing.
What do you think about the recent plunge of the Venezuelan bolivar against the US dollar? Tell us in the comments section below.
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