The Venezuelan Bolivar, which four years ago was worth over USD$0.12, is now worth less than USD$0.01 on the black market. Over the last 12 months, the Bolivar has lost 59.18% of its purchasing power vs. the USD. In September alone, the Bolivar lost 11.96% of its purchasing power vs. the USD, its largest monthly decline in 7 months.
The currency situation in Venezuela is very confusing to most people. Currently, the official government exchange rate is 6.3 Bolivar to 1 USD. However, only those who can convince the Venezuelan government agency Cencoex that they intend to import critical goods like food and medicine – are allowed to purchase USD at this rate.
There is a second exchange rate called SICAD 1, which is currently priced at 12 Bolivar to 1 USD, but is only available to certain importers chosen by the government (friends of Venezuelan President Maduro).
On March 24th, Venezuela launched a new exchange rate SICAD 2, which is currently priced at 50 Bolivar to 1 USD – and is closest to the real black market rate that just surpassed 100 Bolivar to 1 USD. At first, the government allowed businesses to purchase up to $200,000 per day at the SICAD 2 rate, but has since reduced the limit to only $50,000.
To prevent its USD reserves from being completely depleted, the Venezuelan government has been attempting to make the requirements for accessing SICAD 2 as cumbersome as possible. For example, citizens/businesses must provide banks with their tax returns for the two previous years – and banks are required to verify their authenticity. Anyone who wasn’t required to file a tax return for the two preceding periods, perhaps due to a lack of profit (since Venezuela’s inflation crisis has made the country the least productive in the world), isn’t eligible for access to SICAD 2.
Some people believe that SICAD 2 can be looked at as an important first step towards Venezuela implementing a free market exchange rate. The Bolivar initially bounced big on the news – with the Bolivar in March 2014 increasing 17.54% in purchasing power. March was the only month in which the Bolivar actually increased in purchasing power during the last 20 months. The Venezuelan Central Bank only used this as an opportunity to accelerate its money printing/monetary inflation – and in September, the Bolivar dropped below its previous all time low from February – prior to the SICAD 2 announcement.
The only solution to Venezuela’s hyperinflation/currency crisis is to reduce spending, stop printing money, and allow the free market to set currency exchange rates. Only then will shortages of critical food and medical supplies, and 5 hour waits at government supermarkets, finally come to an end. Click on the link below to see brand new interactive NIA charts of Venezuela’s hyperinflation/currency crisis:
[prompt type=”left” title=”Venezuela Hyperinflation Charts” message=”See the Bolivar’s black market decline vs. the USD over the last four years – including month-to-month and year-over-over percentage changes.” button_text=”Click Here to See” href=”/venezuelabolivar”]