By Mision Verdad – Aug 30, 2022
Over the past few days, the exchange rate of the Venezuelan bolívar with respect to the US dollar has risen. This applies to the official exchange rate published by the Central Bank of Venezuela (BCV), and in the case of parallel indicators such as social media accounts known as “dollar monitors.”
This past Friday, July 26, the aforementioned parallel indicators reached an average of 9.20 bolívars per dollar, while the official BCV figure was 7.84. There is a significant difference between the two figures, particularly considering that the disparity between the two rates tends to hover between 5% and 8%.
The parallel dollar peaked on Wednesday August 24 this past week, rising 18.9% percent. This unofficial measure of the exchange rate had remained at 5.98 bolívars per dollar until July 31.
The news surrounding this variation of the price of the dollar, which is clearly negative, ended up at the forefront of the debate on the trajectory of the Economy. That same Wednesday, President Nicolás Maduro had presented the country with data which demonstrated Venezuela’s economic growth.
According to the BCV, the country’s gross domestic product (GDP) has begun to demonstrate a positive trend. In the third quarter of 2021, the Venezuelan economy grew 14.65% with respect to the same trimester of the previous year. With respect to this same parameter, the fourth quarter of 2021 saw a growth of 19.07%, while the first quarter of this year saw 17.04%.
The BCV projects growth of 18.7% for the second quarter of this year.
These figures, beyond being relevant and encouraging, are objective signs of the economic recovery of the country, and they correspond with the estimations made by other national and foreign firms, such as the Economic Commission for Latin America (CEPAL), the Andrés Bello Catholic University (UCAB), the Venezuelan Observatory of Finances (OVF), and Credit Suisse, among others.
In the broader context, a general perception of recovery and stability has grown in the past few months, encouraged by other variables, such as the stability of the exchange rate, the overcoming of hyper-inflation, and the recovery of commercial activity, all of which was reflected in the GDP growth.
Considering this, the reappearance of disruptive tendencies, such as the recent devaluation exhibited in the parallel exchange rate, has, without a doubt, created serious uncertainties, astonishment, and indignation, as it triggers the memories of Venezuelans who have lived through similar situations in the past few years.
Adjustment? Bubble? Induced devaluation? The end of an exchange rate cycle? Struggle?
The sudden movement shown by the exchange rate has unleashed a debate which will most likely not reach a consensus in the near future. A number of theories have surfaced with respect to the cause of the spike.
The majority of the conclusions lead to the fact that during the past few weeks the exchange rate system had started to show weaknesses, since the national government had placed less foreign currency than it had in previous months.
The Venezuelan government, concentrating its monetary policy on strengthening the value and use of the national currency, has chosen to place foreign currency in the freed market in order to finance itself with bolívars.
Furthermore, with the state deciding not to finance its expenses with newly issued currency, the government, by selling its limited foreign currency, in this system obtains bolívars to avoid issuing currency in an uncontrolled manner. This method, based on containing liquidity by issuing money in order to contain devaluation, has been questioned by several analysts as a “monetarist” scheme.
However, according to figures released by the BCV for the second week of August, the increase in liquidity reached 106%, meaning that in August there were twice as many bolívars as there were on January 1, 2022, thus disproving claims that a traditional “monetarist” policy was being pursued. Liquidity continues to increase, albeit at levels much lower than those of previous years, such as 2018, when it reached 66,000%.
The foreign exchange placements made by the BCV in the freed market, which are called “foreign exchange interventions,” had been so fluid that the devaluation was clearly contained. This even helped contain the black market exchange rate.
On October 1, 2021, Venezuelan economist Luis Fernando Guanipa reported on social media platforms that, according to “dollar monitor,” the exchange rate was 5.25 bolívars per dollar. On August 1, prior to this increase, the marker reached 6.01 bolívars per dollar.
According to Guanipa, in 10 months of “foreign exchange intervention” the dollar increased only 0.76 bolivars at a parallel rate. It is an extremely relevant fact for an economy that has passed through hyper-devaluation and hyper-inflation, and one that continues operate under economic blockade. It should be recalled that in 2018 official inflation was tagged at 130,000%.
The free exchange rate system is a benchmark to explain the slowdown in inflation through the combination of BCV investments and moderate liquidity. According to data from the BCV, the accumulated inflation for 2022, up to the end of July, was 48.8%, the lowest in the last seven years. No small feat, considering where we come from.
The reasons that refers to the “weaknesses” of the “exchange rate intervention” scheme, although its results in stabilizing the currency have been clear, is the “drought of foreign currency (dollars)” to be injected into that system, or inasmuch as that is what some sources on the economic issue have pointed to. These same critics are those that refer to an “end of the exchange rate cycle” and qualify the method as “failed.”
On Monday, August 22, the BCV offered bonuses payable in bolivars instead of dollars to economic actors (banks). According to opinions on the economic issue, this produced a “negative reaction” and “uncertainty” among the agents. Everyone can draw their own conclusions.
However, on Thursday the 25th, the BCV injected dollars into the exchange system. However, various sources have reported different amounts. There was talk of $200 million, but many have dismissed that amount.
Furthermore, it is known that the BCV urged banking entities to place available currency to contain the bullish streak. In other words, for the Venezuelan government there is no exhausting the method.
Other hypotheses have also emerged, criticism of such as that an “inorganic issuing” of bolivars was generated to pay bonuses to teachers and educational personnel and therefore generating a “maximum devaluation.” This hypothesis, which could reflect this possibility of issuance, does not include updated liquidity data.
This accusation, in terms of narrative, which considers public workers and the national executive as the “cause” of the “disaster,” demonstrates clear political flavors, and even aporophobia, but has in its favor the “coincidence” that, at the moment when payment of the vacation bonuses was ordered, the parallel exchange rate began to skyrocket,” as some economists noted, due to “uncertainty of economic agents.”
Another hypothesis that has emerged is that of a induced devaluation pushed by the business class to “balance” the exchange rate, given the possibilities of opening the border with Colombia since, according to this criterion, “balance” implies more bolivars for dollars at the exchange market, and this can boost Venezuelan exports.
This induced valuation acts as a firewall. The Venezuelan private economy could be “swallowed” by the Colombian economy, this hypothesis points out, and there could be an invasion of Colombian products, disabling Venezuelan national production since, unusually, and despite the low salaries in dollars that private companies pay their workers (comparatively with other countries), many products made in Venezuela, in dollars, cost double or triple than their equivalent in Colombia.
In theory, persistent inflation, combined with an “artificially” falling or “stepped” dollar, makes the dollar prices of Venezuelan products more expensive and this creates advantages for exporters ￼from Colombia.
There is a non-economic yet very relevant fact that has emerged in recent days. It is the societal rejection of the “dollar monitor” marker. It is a universal rejection, not limited by political identities.
The Instagram accounts named Dollar Monitor, which have multiple copies of themselves, have been addressed with vehement rejection by their users, who consider that parallel (black market) markers are part of the problem that contribute to rampant speculation.
One of these accounts, with the username @emparalelovnzla, lost more than 100,000 followers. Their accounts did not allow comments, and from Tuesday the 23rd onwards they stopped publishing the parallel rate and only presented the image of the BCV official rate.
This social upheaval is no small matter considering the quotidian experience of the recent economic past. While markers such as DollarToday wreaked havoc on the national economy, the BCV reference on the exchange rate made its way and positioned itself as a marker synonymous with stability and trust.
Most formal merchants use the BCV exchange rate for their daily activities, not only because of government regulations, but also because of the marker’s own quality of being a “reliable reference” of the released value of the Venezuela currency.
In other words, for many operators the BCV is a benchmark of trust, something that was unthinkable back in 2017/2018. The national president himself underlined this on the afternoon of Thursday August 25, and again on the morning of Friday, August 26. It is convenient to highlight them, not only because of the relevance of the person speaking them, but also because they consist of a sincere opinion on the issue.
President Nicolás Maduro has indicated that the BCV dollar is “a market dollar, it is not a fixed dollar.” He questioned the “tales of theorists and analysts” stressing that the reference price is governed by “market rules.”
This comment is timely because he clarifies that, although the country has enjoyed exchange stability in the last year, the position of the exchange rate, while it is subject to variations, may be stationary. But these can also be due to internal economic pressures.
“There are those who want to disturb the economic recovery. I ask the merchants for maximum awareness and I ask the people for a fighting spirit—do not allow yourself to be robbed,” said the Venezuelan president, regarding the use of the parallel rate for calculating prices.
“There is a legal market dollar, which is the BCV dollar,” he stressed.
On the morning of Friday the 26th, referring to an economic struggle and agent provocateurs, President Maduro tweeted “enough of so much torture of the Venezuelan economy. They have failed to bring us to our knees. Venezuela found its own path … towards the construction of a victorious future.”
On Friday, August 26, at 1 p.m., the parallel marker fell to 8.56 bolívars per dollar, 6.77%. It is the steepest drop since the escalation began and it is estimated that the injection of foreign currency by the BCV the previous day has temporarily contained the upward trend.
However, during the days and weeks to come, the development of foreign exchange activity will show features that are still unforeseen. It is up to the government and economic actors to determine the new equilibrium point of the exchange rate and the conditions for its sustainability, since this point of confluence is the epicenter of economic governance that most impacts the population on a daily basis.
The exchange rate is likely to stabilize for several weeks between 8 and 9 bolívars per dollar, and could even double that value to form a new “high plateau” that could last for months.
However, on the other hand, if there are political components behind the exchange rate pressures, they can interact to pacify a new harmful devaluation spiral, which stops growth, as well as the recovery of consumption, and accentuates a deeper fall in public wages. Obviously, this would be to the detriment of many private economic actors who had already been burned in years past because of the internal economic war and the blockade.
That scenario would be the imposition of a new economy of “broken dishes,” designed to socialize and expand losses in a sphere so wide that it would include many agents. Perhaps the present situation throws non-viable conditions for such a possibility.
Returning to the present conditions and to the scenario in which the exchange system has a “crawling” type behavior, the Venezuelan economy of 2022 has particularities that it did not have in previous years. The public sector of the working mass is clearly the most affected by the devaluation of the bolívar. However, on the other hand, a significant spectrum of the population that maintains a dollarized or calculated income in dollars will be less affected. Therefore, the sphere of social impact is also differentiated.
Let us not forget, the economic and multifactorial blockade of the country continues; it has not subsided. It is a factor that must not be forgotten.
The Venezuelan economy continues in a process of forced transition, which President Maduro has referred to as the “end of the oil rentier cycle” and the development of a “virtuous and diversified economy,” but the crude oil production marker, which continues to be determinant, is conditioned by the evasive practices of the blockade that the Venezuelan government has applied, being able to export a tiny part of its crude on the sly.
That is where a good part of the growth that is being registered lies, and this is a source of foreign currency income for the country, which will feed back into the exchange system. Those conditions will continue to be fundamental on all fronts of the economy.
Hence, the future of the exchange system and the exchange rate will not be determined solely by domestic factors or by exchange provisions. There are much more complex external factors involved. The framework of possibilities is extremely extensive and open.
Translation: Orinoco Tribune
Misión Verdad is a Venezuelan investigative journalism website with a socialist perspective in defense of the Bolivarian Revolution
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