Benchmark

Venezuela's Currency Just Collapsed 30% on the Black Market

Is the Bolivar now undervalued?

A stack of Venezuelan 100 bolivar notes sits on the table of a black market currency exchanger in Cucuta, Colombia. 

Photographer: Alejandra Parra/Bloomberg
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The stunning collapse of Venezuela's bolivar in black market trading this month -- it fell to as low as 423 bolivars per dollar from 279 at the start of the month -- has left Venezuelans scratching their heads, with many wondering why it has sunk below the value of gold and hard currency the central bank has to back it.

Venezuela has maintained strict currency controls since 2003 and currently has three legal exchange rates of 6.3, 12 and 199 bolivars per dollar used for priority imports. On the black market, where people and businesses turn when they can’t obtain government approval to purchase dollars at the three legal rates, the bolivar has weakened 82 percent in the past year to 397 bolivars per dollar on May 26, according to dolartoday.com, a widely watched website that tracks the exchange rate in the Colombian border city of Cucuta.