One of the most volatile currencies on earth is facing more devaluation. The Venezuelan Bolivar, which had a measure of stability for most of the year, is now quickly depreciating. Black market prices for a single US Dollar are expected to reach the $1,700 Bolivar mark before the end of the year. This is partly due to the abysmal performance of the Venezuelan economy, which contracted by about 10% this year, and other factors that are not as publicized. Certainly the decline in oil prices, oil infrastructure investment and the lack of production in other sectors, have taken a toll on the Venezuelan economy. Nevertheless, political unrest and inflation are pushing the US Dollar to new heights, prompting people to pay whatever it takes to acquire an asset that will keep its value.
The black market Bolivar – the Venezuelan government has strict controls in place to limit the sale of foreign currency within the country – declined sharply during October. The Bolivar has lost about 50% of its value so far this year. $1 US Dollar is now worth around $1,500 Bolivares, which judging by the economic and political situation in Venezuela could still be too low a figure to reflect what the future has in stock for the country.
With oil prices tumbling of late, and no agreement in sight between OPEC and non-OPEC producers, Venezuela will not get a foreign currency boost any time soon. Its foreign reserves are also at a multi-year low, at levels of about $13 billion USD. With inflation running as high as 475%, and a shortage of basic staples like milk, eggs and flour getting worse by the day, the political situation has worsened considerably.
The government is under intense pressure, but the opposition faces many obstacles to replace it. Even if the opposition could replace President Maduro’s government, Venezuela is facing structural problems that will likely bring it to a complete collapse. This outlook adds to the downward pressure that the Bolivar is facing. Further devaluation is certain and there is no limit in sight. It will probably take years if not decades to pull the Venezuelan economy back up again, especially with oil prices staying stubbornly low. The fate of the Bolivar is tragically tied to this dead end economic reality, and the average Venezuelan will likely feel the pain of failed government policies for a long time to come.