April 15, 2016

After crossing the 1,200 VEF per USD threshold and hitting an all-time low on 10 March—the same day that the new two-tier exchange rate system was introduced—the Bolivar appreciated, albeit marginally. On 15 April, the bolivar traded in the parallel market at 1,134 VEF per USD. The result represented a 6.3% appreciation over the same day of the previous month but a whopping 343% depreciation over the same day last year. The parallel dollar has lost 36.2% of its value since the start of the year. The slight appreciation of the parallel dollar at the end of March and in the first half of April reflects a normal response in the foreign exchange market following a strong depreciation of the official exchange rate. However, the country’s dire financial situation and intense dollar shortage is at the heart of the parallel dollar’s depreciation as low oil prices have limited the government’s ability to supply dollars to the exchange system.



Panelists participating in the LatinFocus Consensus Forecast see the parallel dollar continuing its downward trajectory this year and project a non-official exchange rate of 1,936 VEF per USD by the end of 2016. In 2017, the panel sees the non-official exchange rate depreciating to 2,555 VEF per USD.



Meanwhile, the Dipro exchange rate—the first tier of the new exchange rate system—remained unchanged at 10.00 VEF per USD on 15 April after it was devalued by 37.0% in February. According to the government, the Dipro will be used exclusively to purchase essential goods such as medicine and food products and can face further devaluations if authorities deem it necessary.



The free-floating Dicom—the second-tier of the new system—has depreciated considerably since its introduction on 10 March. On 15 April, the Dicom traded at 339.45 VEF per USD. The result represented a stark 50.7% depreciation over the same day of the previous month. With the Dicom, the government anticipates that market movements of supply and demand will improve liquidity and correct the inconsistencies that plagued the defunct three-tier system.



Analysts remain highly skeptical regarding the effectiveness of the new exchange rate system. According to data released by the Central Bank, virtually the same proportion of foreign exchange is being sold at the 10.00 VEF per USD rate as in the old system, which shows the limited impact the new system has had. Furthermore, there is great skepticism that the government will commit to a floating exchange rate. Venezuela has made similar pledges in the past that did not materialize and has never allowed the exchange rate to be set by market forces. The Dicom is the country’s fourth currency exchange system since 2013 that was intended to be free-floating. Moreover, it is very unlikely that the Dicom will alleviate shortages of goods and services because the government still maintains price controls and there are numerous legal hurdles for imports.



The FocusEconomics panel is split on whether the Venezuelan government will modify the exchange rate system before the year’s end. For 2016, only four panelists expect the current exchange rate system to remain unchanged while the remaining panelists expect a devaluation in the official rate this year. By the end of 2017, all panelists foresee a change in the currency exchange rate system.