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The Venezuelan currency stabilizes, but with a high cost in foreign exchange

Caracas, March 26 (EFE).- Until a little over half a year ago, the price of the dollar increased in Venezuela, a measure that the local currency -the bolivar- was devalued, but in recent months, it has remained stable, as result of a strategy implemented by the country’s authorities to contain inflation and support the exchange rate, according to experts. From January to July 2021, the exchange rate increased by 262%, rising from an average of 1,114,769 bolivars per dollar to 4,036,633, amounts that, after the monetary reconversion last October, the third in this century and with which Six zeros were eliminated from the bolívar, becoming 1.11 and 4.03 bolívares, respectively. This rise devalued the bolívar by 72% in just seven months, but since the end of July, the price of the dollar has remained between four million and five million bolívares, equivalent, after the reconversion and with the zeros amputated, to four and five. THE STRATEGY Behind the stability of the exchange rate, there is a strategy of the authorities consisting, in the opinion of experts, of controlling the demand for dollars themselves by reducing bolívares and, at the same time, increasing supply by injecting Large amounts of foreign exchange in the economy, originating, in large part, from oil revenues. Economist Asdrúbal Oliveros, director of the Ecoanalítica company, told Efe that the government has lowered its spending and restricted bank credit to reduce the issuance of bolivars, which is mandatory to acquire foreign currency in Venezuela. At the same time, the Central Bank (BCV) has increased its “massive injections” in the domestic market in the last year, which it has been applying since February 2019, Oliveros explained. According to Ecoanalítica’s calculations, the BCV sold 2,197 million dollars to the bank from February 2019 to February 2022. A good part of this currency comes from oil exports, which continue to be the country’s main income, even though today they represent the 70% of the total. Before the sanctions against the state-owned PDVSA, imposed by the US in 2019, they were 95%, always according to the consultant. But oil is not the only source of foreign currency that goes to the financial system, since, according to Oliveros, it also arises from other activities such as “gold, cryptocurrency mining and the sale of scrap metal.” “The Government receives many of its payments (collections) in cash because it has restrictions to use the international financial system due to sanctions, so it prefers to use, mainly, cash and cryptocurrencies. It is from that money, from those entries, that the sale of foreign currency,” he explained. PRICES The stability of the exchange rate has slowed down inflation in the country, where most goods are priced in dollars. Since last September, the average monthly price growth has been one digit only, according to the BCV. Although the merchants assured that the prices in bolivars of their products have not varied at the same speed as before, when Venezuela was experiencing inflation and faced monthly increases of more than 50%, this hyper stability has had its cost: the increase in the cost of Expenditures in foreign currency in the country. Last February, the basic food basket had a cost of 455 dollars, which represented an increase of 61% compared to a year ago (282 dollars), according to the Center for Documentation and Social Analysis of the Venezuelan Federation of Teachers (Cendas -FVM). RISKS Oliveros is surprised that the exchange rate may be affected as a result of the international sanctions that have been applied against Russia after its invasion of Ukraine, due to the fact that part of the payments for Venezuelan crude move through the Eurasian giant, “one of the Venezuela’s big cash providers”. “This can generate a shortage of cash and reduce the government’s ability to sell foreign currency through banks, which would accelerate the exchange rate,” the expert pointed out. However, he does not see the risk that it will skyrocket after the increase in the minimum wage approved by President Nicolás Maduro this month, which went from 7 to 130 bolívares, because, “for the first time in a long time”, it is an increase “which does not come from the monetary issue but from the Government’s own cash generation, which has improved, both due to the increase in exports and the price of oil.” c) EFE Agency

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