Venezuela's Bolivar Slides in Black Market After Devaluation Announcement

Venezuela’s bolivar fell in the unregulated market after the government devalued the currency by unifying the country’s two official exchange rates.

The bolivar’s street price weakened as much as 10 percent to 9.25 per U.S. dollar today, from about 8.3 bolivars per dollar last week, according to Lechuga Verde, a blog that monitors the price of the currency on the unregulated market.

’’People fear the government will implement more restrictive and aggressive measures to keep inflation down,’’ said Alberto Ramos, senior Latin America economist at Goldman Sachs & Co. “That nurtures an environment that increases the demand for dollars as a hedge against devaluation and a hedge against inflation.”

The government on Jan. 1 weakened the official exchange rate on imports of so-called essential goods such as food and medicine to 4.3 bolivars per dollar from 2.6 bolivars, unifying the two fixed exchange rates in a bid to pull the country out of recession.

Venezuelan companies and individuals turn to the unregulated market when they can’t get government authorization to buy dollars for imports from the currency exchange commission or a regulated market administered by the central bank, known as Sitme, that trades at about 5.3 bolivars per dollar.

President Hugo Chavez dismantled a parallel currency market administered by privately-owned bond brokerages last year and replaced it with the Sitme after the bolivar fell to record low of 8.2 bolivars per dollar.

After the parallel market was outlawed, the unregulated market was driven underground. Trade is carried out by exchanging physical notes or by electronic transactions in which the seller of dollars deposits in a dollar-denominated bank account and receives bolivars in a bolivar-denominated account.

To contact the reporter on this story: Charlie Devereux in Caracas at cdevereux3@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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