What’s happening to Venezuela’s currency?

Venezuela’s official currency, the Bolivar is collapsing again, as its back in decline after a rare period of stability in the past few months and weeks. 

As it seems, the massive rise in oil prices this year against the backdrop of the Ukrainian war didn’t save the economy of the country with the largest oil reserves in the world.

The Bolivar has lost a third of its value so far this month, hitting new lows of 9.33 Bolivars per US dollar, in the parallel exchange market. 

It is the largest monthly decline since January 2021. 

Venezuelan President Nicolas Maduro asserted that the currency depreciation was “illusory” and blamed an “unscrupulous group” for currency speculation and manipulation, vowing and warning during a televised address last Thursday that those seeking to harm the economy would be damaged.

Indeed, from the outset, Venezuela’s strategy to control exchange rates has been about speculation and the infusion of dollars into the markets, and the president has always bet on the possibility of controlling the parallel market in this way.

But as a result, the Bolivar has continued to bleed over the years, and is now still incurring losses against the dollar despite the previous 6 zeros being deleted to control inflation and revalue the currency after its exchange rate reached “astronomical numbers” as some describe.

The Bolivar had begun to falter at the end of last month, although most of the losses occurred this week. 

This continued until the difference between the black market price (9.33 Bolivars) and the official price (7 Bolivars) expanded to the largest level since the six zeros were deleted in October of last year.

Last Thursday, the Venezuelan Central Bank injected nearly $94 million into the market in an attempt to stem the decline. 

But Venezuela doesn’t have an infinite amount of US dollars, so the ability to pump hard currency has been gradually and visibly declining since last May.

In June 2022, the central bank also sold six tons of gold, according to the bank’s balance sheet for the first half of the year, which was published by local media.

Financial data from the Central Bank showed that the amount of gold bullion in the bank’s vaults at the end of the first half of this year amounted to 73 tons, which is the lowest level in 50 years. 

In the second half of 2021, the central bank had about 79 tons in its vaults.

The value of gold reserves at the end of June this year amounted to $4.329 billion, which is $231 million less than in December 2021 when it amounted to $4.56 billion.

The government and the Central Bank refrained from providing any justification for what is happening, and they didn’t issue any comment regarding the decline in gold reserves at this pace.