Venezuela has ignited financial market news with cash on the shores of the new Bolivar

Venezuela’s central bank has entered the exchange market with about 40 40 million per week since launching a new version of the bolivar with six less zeros.

Venezuela is pushing its national currency forward due to six low-zero price increases after launching a new version of the bolivar.

Since the introduction of the so-called digital bolivar on October 1, the central bank has entered the exchange market at about 40 40 million per week. This is usually double the amount sent to the bank.

So far, it has worked. The street exchange rate – known as the parallel market – was 4.1 bolivars per dollar on Tuesday. The currency weakened to 5.2 per dollar before the introduction of the digital bolivar as Venezuelans rushed to get their hands on the greenbacks.

Around the capital, Caracas, there was a sharp rise in prices as new currencies came out. According to the political opposition-led Finance Observatory, the price of a basket of eight basic commodities rose 13.7% in the week of currency launch, the second-highest weekly increase of the year. However, after the central bank’s intervention, basket price conversions have returned to pre-war levels, says Angel Alvarado, the opposition’s founding lawmaker.

“The question is whether the central bank has enough cash to support this policy and so, if it is worth it,” Alvarado said.

As of September, international reserves were at a 30-year low as the government sold gold in much-needed cash. Last month, the central bank added ৫ 5 billion to its reserves, in line with the International Monetary Fund’s allotted orwon rights. However, Venezuela cannot access IMF funds because members have not agreed on who the country’s legitimate leader is.

Venezuelans have been battling hyperinflation since 2017. Although inflation has eased this year, they remain sensitive to exchange rate volatility. Bolivar’s value has dropped to a point where accounting systems can no longer support long statistics.

Currency revaluation – Aimed at facilitating third-commercial transactions since 2008. The government has introduced a family of new coins and bills, the largest, for 100 bolivars, which cost about 24 24.

Still, banks have been supplying mostly low numbers of 5 and 10 bolivars. The dollar still dominates cash transactions, even in low-income sectors.

Fearing Bolivar’s instability, Adrian Vegas has put the price of the product in dollars in his small store on the outskirts of the Caracas slum of Peters.

“Imagine having to change prices in Bolivar every day,” he said.

A butcher shop lists prices in US dollars on Monday, October 4, 2021 in the Petare neighborhood of Caracas, Venezuela. [File: Bloomberg]

The administration of President Nicolas Maduro has already allowed the economy to tingle in an informal dollarisation, and bolivars are now mostly used for public transportation, subsidized gasoline.

“People look at prices and they don’t even think about digital bolivars. They think of dollars, ”said Jose Estrada, manager of the butcher’s shop. Still, he said this latest currency conversion was “easy” because even the most basic value before the reorganization was worth a few million bolivars.

It may be short-lived, however, unless the government is able to control inflation, said Jose Manuel Point, professor of economics at the Institute for Higher Education in Management (IESA) Public Policy Center.

“Currency conversion is a cosmetic system that has no impact on income, expenditure or the macroeconomic environment,” he said. “You’re going to get back the zeros you left out.”

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