- Currency has lost a third of its value against the USD this month.
- The Venezuelan government has been struggling to combat inflation.
- The move comes when Venezuela is facing a political crisis.
On Monday, the Venezuelan currency was virtually 35 percent devalued to bring it in line with the black market dollar-to-bolivar exchange rate. The official exchange rate fell to 7.10 bolivars per U.S. dollar, 1.60 bolivars less than the parallel value. Asdrubal Oliveros, head of market research firm Ecoanalitica, explained there are two factors affecting the exchange rate:
The first one has to do with the rise of public spending, which has put more bolivars in the hands of citizens and companies that entices them to purchase dollars to preserve their savings rather than spend bolster domestically.
Another element is the intervention that the Central Bank of Venezuela has been executing, selling dollars through national banks. This week’s reduction in available funds was less than 20% of what is typically offered.
A weaker bolivar jeopardizes the government’s efforts to keep inflation in check. While annual price rises top out at over 300 percent, they are a fraction of what they were during hyperinflation. Although prices have begun to creep up recently, this could be exacerbated if the bolivar keeps declining.
Bitcoin, however, has seen a surge in popularity in Venezuela as people look for new ways to protect their savings from the inflationary bolivar.
The cryptocurrency could also provide a way for Venezuelans to access international goods and services that are otherwise unavailable due to the country’s economic isolation. Of course, bitcoin is not a perfect solution. However, it is the best option available for Venezuelans who are struggling to make ends meet.
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