Until a little over half a year ago, the price of the dollar increased in Venezuela, as the bolivar devalued, but in recent months, it has remained stable, as a result of a strategy implemented by the country’s authorities to contain inflation. and sustain the exchange rate, according to experts.
From January to July 2021, the exchange rate increased 262%, rising from an average of 1,114,769 bolivars per dollar to 4,036,633, amounts that, following the monetary reconversion last October, the third in this century and with which six zeros were eliminated from the bolívar, became 1.11 and 4.03 bolívares, respectively.
This rise devalued the bolívar 72% in just seven months, but since the end of July, the price of the dollar has remained between four million and five million bolívares, equivalent, following the reconversion and with the zeros amputated, at four and five.
The strategy
Behind the stability of the exchange rate, there is a consistent strategy of the authorities, in the opinion of experts, of controlling the demand for dollars by reducing bolivares and, at the same time, increasing supply by injecting large amounts of foreign currency in the economy, originating, in large part, from oil revenues.
Economist Asdrúbal Oliveros, director of the Ecoanalítica firm, told Efe that the government has lowered its spending and restricted bank credit to reduce the issuance of bolivars, which are necessary, obligatorily, to acquire foreign currency in Venezuela.
At the same time, the Central Bank (BCV) has increased its “massive injections” of foreign currency in the domestic market in the last year, which it has been applying since February 2019, Oliveros explained.
According to Ecoanalítica’s calculations, the BCV sold 2,197 million dollars to banks from February 2019 to February 2022.
Much of this foreign currency comes from oil exports, which continue to be the country’s main income, even though they currently represent 70% of the total. Before the sanctions once morest the state-owned PDVSA, imposed by the United States in 2019, they were 95%, always according to the consultant.
But oil is not the only source of foreign currency that goes to the financial system, since, according to Oliveros, it also arises from other activities such as “gold, cryptocurrency mining and the sale of scrap metal.”
“The government receives many of its payments (collections) in cash because it has restrictions on using the international financial system due to sanctions, so it prefers to use mainly cash and cryptocurrencies. It is from that money, from those tickets, that the sale of foreign currency comes”, he explained.
Prices
The stability of the exchange rate has slowed down inflation in the country, where most goods are fixed in dollars. Since last September, average monthly price growth has been in single digits, according to the BCV.
Although merchants assure that the price of their products in bolivars has not varied at the same speed as before, when Venezuela was experiencing hyperinflation and faced monthly increases of more than 50%, this stability has had its cost: the increase in the cost of foreign exchange spending in the country.
Last February, the basic food basket had a cost of 455 dollars, which represented an increase of 61% compared to a year ago (282 dollars), according to the Center for Documentation and Social Analysis of the Venezuelan Federation of Teachers (Cendas -FVM).
risks
Oliveros considered that the exchange rate may be affected as a result of the international sanctions that have been applied once morest Russia following its invasion of Ukraine, due to the fact that part of the payments for Venezuelan crude move through the Eurasian giant, “one of the Venezuela’s large cash providers.
“This can generate cash shortages and reduce the government’s ability to sell foreign currency through banks, which would accelerate the exchange rate,” said the expert.
However, he does not see the risk that it will skyrocket following the increase in the minimum wage approved by President Nicolás Maduro this month, which went from 7 to 130 bolívares, because, “for the first time in a long time”, it is an increase. “That does not come from the monetary issue but from the government’s own cash generation, which has improved, both due to the increase in exports and the price of oil.”
