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Venezuela devalues the bolivar again

ECA International

The Banco Central de Venezuela yesterday devalued the bolivar soberano by 35%, moving its exchange rates very close to those available on the black market.

Having begun the day at USD 1 / VES 2 084, the official exchange rate was moved to VES 3 200 (latest black-market rate is VES 3 188). Media sources reporting the change suggested the authorities intended the new exchange rate to be fixed. If so, it is unlikely to align with black-market rates for long. However, today the central bank's website is showing a rate of USD 1 / VES 3 299, so it seems to be flexible. We will monitor it over the next few days and report further in our monthly exchange-rates round-up post next week.

Although most devaluations cause inflation to rise, mainly because they increase import costs, this one is unlikely to make much difference. Inflation is already at extraordinary heights (latest annual rate of 1 700 000% to end-December, according to the opposition-led National Assembly, whose leader, Juan Guaido, is currently trying to usurp the presidency from Nicolas Maduro) and most imports will have been priced using black-market exchange rates for some time, because the rates 'offered' by official sources have very often not been available due to a shortage of hard currencies.

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