Venezuela’s fiat currency, the bolivar, lost almost 40% against the US dollar in one month. Seasonal payments the government has to make and the government’s lack of liquidity to intervene in the currency market are reportedly part of the equation that led to this, but some also include cryptocurrency as part of the problem.
Venezuela’s currency is in decline
After recently enjoying a period of relative stability, Venezuela’s currency, the bolivar, has been losing value at an alarming rate. In parallel markets, the currency has lost almost 40% against the US dollar, and citizens are alarmed by the acceleration of the devaluation. According to the famous “Monitordollar” price index, on October 25, the price of each dollar was 9.05 bolivars.
There are several explanations for this decline. Analysts said the decline was expected as a result of increased spending, which is common during the Christmas season, and high liquidity injected into the market by government and other company bonuses and payments to workers.
This is part of the theory formulated by the Venezuelan economist Jose Guerra. Guerra said:
Demand for bolivars has decreased due to high inflation, so when bolivars enter circulation, the public turns to buying goods and dollars to protect against inflation and devaluation.
Asdrubal Oliveros, head of the economic research firm Ecoanallitica, also explains that the Central Bank of Venezuela has failed to intervene by injecting liquidity into the official currency market. This is due to a variety of reasons, including the lack of dollar flow due to sanctions, which complicate the movement of these funds, which are mainly 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.
Impact of cryptocurrency
However, aside from the usual suspects, Oliveros also believes that there is a crypto element that aggravates this situation. Most of the parallel currency market, independent of government intervention, is currently fueled by market makers who use cryptocurrency exchanges to bring these funds into the country, Oliveros says.
However, due to the continued bearish trend that the cryptocurrency market is facing and the lack of confidence in centralized exchanges due to the collapse of one of the world’s largest cryptocurrency exchanges, FTX, these market makers have limited their exposure, leaving the market illiquid. causing a shortage of dollars.
The economist expects the exchange rate to continue to rise as these problems worsen in the next few days, describing the situation as a “perfect storm” for devaluation to continue to grow.
What do you think about the recent decline of the Venezuelan bolivar against the US dollar? Let us know in the comment section below.
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