Despite the adjustments, experts warn that the same flaws persist, widening the gap between the official rate and the parallel market.
The official exchange rate in Venezuela opened this Tuesday, May 12, at 504.91 bolívares per dollar. Exactly one year ago, it was 93.04 bolívares. That's a devaluation of 442.6%, not to mention the fact that over these 27 years, the Chavista regime has removed 14 zeros from the Venezuelan currency.
The Bolivarian revolution shifted from imposing strict currency controls to encouraging a sort of de facto dollarization, which it has since tried to reverse by imposing taxes like the Financial Transactions Tax (IGTF), which, despite its name, actually hits any operation done in foreign currency with a 3% charge.
In this latest phase, the government of Delcy Rodríguez is trying a new formula to feed the dollar market. However, the mechanism still carries the flaws that have caused imbalances in the country’s accounts, warn two economists who prefer to remain anonymous.
Experts detail that a bidding model was previously applied. What did this process consist of? “Banks received a certain amount of currencies to be sold in auctions to their clients. The Central Bank of Venezuela (BCV) approved the destination (company) and the price at which the currencies would be sold,” they respond.
We had to wait until the end of the day for the BCV to approve each order, and there was never a signaling scheme to explain why an allocation wasn't validated,” they emphasize, highlighting that the auction model was “ineffective, disorganized, opaque, and discretionary.”
Economists argue that “for companies, it meant having bolívares frozen until the uncertain moment of approval. The uncertainty and urgency made companies go out to seek currencies in the market, which increased upward pressure on the dollar price and the pernicious exchange rate gap.”
Auctions are a thing of the past, and since March 31, the “intervention” system has been employed, where a certain amount of currencies is assigned to banks that must sell them during the week. But to dose the sale, the BCV must authorize the amount to be sold when it announces the intervention first thing in the morning.
We have interpreted this as a mechanism that seeks to extend the duration of the currencies received from the trust fund in the United States. In other words, stretch until the next batch of currencies arrives. These batches have been about $500 million, and the BCV has trusted the banks that they will be arriving approximately every two weeks,” sources describe.
Economists point out that the government rations and extends the duration of currencies because it doesn’t know precisely how often they will come in from the trust fund. “They fear a drought while waiting for another batch, and the market is extremely sensitive.”
Despite the modifications, the same practices are still in play. “The BCV may not announce the intervention even though the bank already has the currencies available, and thus, bank customers are left waiting until another day. Again, customers go to the market to keep their businesses active.”
Analysts indicate that the authorities “make a grave mistake by telling the bank: Here you have 50 million, and on the first day sell 10. That won’t achieve the stabilizing effect. If the company doesn’t know when it can buy, it heads to the parallel market.”
With a lack of transparency and clear rules, there’s also the insistence on selling currencies below market price, incentivizing arbitrage. “Allocations to individuals are increasing, so the customer buys subsidized currencies, is given a digital credit card that converts into dollars deposited into an account or taken to cryptos to obtain bolívares, and then repeats the same transaction.”
In the end, there are three rates: The BCV’s (504 bolívares today), the intervention model (611 bolívares), and the black market, where the sky's the limit. As a result, inflation over the last 12 months reached 611.19%.
“This new dosifying intervention system comes out with a fixed rate of 611 bolívares. That rate is not reflected in the BCV rate, because everyone is required to invoice at that rate (504 bolívares for this Tuesday), and that would have an impact on inflation, as well as on the system's patria bonds (which the government grants), which are indexed to the variation of the BCV rate.”
Bankruptcy
Professor José Manuel Puente, a PhD in Political Economy from the University of Oxford, highlights that “Venezuela is experiencing serious macroeconomic imbalances, where undoubtedly the most complex is the exchange rate mismatch with a currency that devalues sharply every day.”
Puente believes that in this matter, the government of Delcy Rodríguez “changed to not change.” The consultant identifies the reasons that hinder achieving stability. “There’s great incompetence in macroeconomic management, we lack a stabilization program with the International Monetary Fund, we record the lowest international reserves in the last 30 years, and we also don’t have monetary gold reserves because they have been sold.”
Puente asserts that Venezuela is facing a sort of perfect storm, where all the economic problems are compounded by “a very acute political crisis.” “Markets read you, and all that instability affects the exchange rate,” he underscores.
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