Venezuela Lets Bolivar Depreciate Amid Rising Demand for US Dollars
Venezuela is allowing the Bolivar to depreciate as demand for US dollars increases, risking inflation. This move comes in response to the gap between official and black market exchange rates.
In a strategy to quell demand for US dollars that has been on the rise since July's election, Venezuela is allowing the Bolivar to slide against the dollar. The currency now trades for nearly 43 Bolivars per dollar, up from about 37 at the start of October. This decision is a response to the growing gap between the official and black market exchange rates. The currency has come under intense pressure following the disputed presidential vote, with Venezuelans seeking the safety of the US dollar.
The Central Bank has injected over $2 billion into the official exchange market to stabilize the currency, but the move has done little to contain the black market rate. With uncertainty surrounding Maduro's government and its ability to control the money supply, the depreciation of the official rate is a high-stakes gamble. Monthly inflation is currently below 2%, but higher spending ahead of Christmas may change that dynamic.