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Tuesday, March 28, 2023

Venezuelan Bolivar Plunges as Central Bank Stops Intervening and Public Spending Rises

Venezuelan Bolivar Plunges as Central Bank Stops Intervening and Public Spending Rises – The Venezuelan bolivar, the country’s official fiat currency, has plunged 35.51% of its value this week against the U.S. dollar due to a variety of circumstances, hitting a rate of 8.70 bolivars per dollar. This will raise prices in the near future, economists believe, with the exchange rate rising to as much as 12 bolivars per dollar by December.

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The U.S. dollar’s recent surge is having an impact on a number of Latam countries. The official currency of Venezuela, the bolivar, lost 35.51% of its value against the dollar. According to Monitor Dolar, a well-known Twitter account that aggregates the cost of the US dollar across different exchanges, the exchange rate achieved an all-time high of 8.70 bolivars per US dollar. However, prices on Binance’s well-known P2P exchange rose to above 9 bolivars per dollar.

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1.60 bolivars less than the parallel value, the official exchange rate was 7.10 bolivars to every dollar. Two factors, according to Asdrubal Oliveros, CEO of the market research firm Ecoanalitica, influence the exchange rate: The first one has to do with the surge in public spending, which has given people and businesses more bolivars in their possession as they are persuaded to buy dollars in order to protect their savings.

The Central Bank of Venezuela’s intervention, which involves selling dollars through national banks, is the other factor. This week’s intervention was reduced; according to sources, less than 20% of the typical auctioned items were offered.

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Oliveros believes that this would result in a sudden increase in costs, which will have an impact on the inflation numbers that were relatively under control up until this month. If the central bank does not intervene with the same amount of funds to keep the market stocked with foreign currency, predictions for the end of the year indicate that the exchange rate will continue to increase.

In this regard, economist Luis Arturo Barcenas of Venezuela predicts that by the end of the year, the exchange rate would increase to between 10 and 12 bolivars per dollar. According to Barcenas: “The monetary mass has doubled in 8 months, due to the pressures that the government has received for the payment of salaries and bonuses.”

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In an attempt to stop the rise in the exchange rate, the Central Bank of Venezuela will conduct a second intervention this week and invest $200 million in an auction on national banks. The bank will auction off twice as much as is typically agreed upon each week.  Last year, the country had to carry out a currency redenomination, removing six zeros from its currency to make handling and making payments easier.

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