Venezuela Partially Floats Exchange Rate, Sees Rise by 42 Bolivars

Caracas, March 23, 2016 (venezuelanalysis.com) – Venezuela’s uppermost SIMADI exchange rate closed at 249.56 bolivars per dollar on Tuesday, amounting to a 42.64 increase since the government instituted a partial float on March 10. 

Earlier this month, the Venezuelan government announced a string of changes to the country’s currency exchange regime, reducing the four-tiered system to two rates: a “protected” 10 bolivar rate reserved for vital imports and a nominally free-floating rate. 

The increase in the now free-floating SIMADI rate is the largest since it was first introduced in February 2015, opening at 170 and subsequently remaining fixed at approximately 200 bolivars until this month.

Under the new regulations, the SIMADI rate– renamed DICOM– will now float, however, with a monthly ceiling fixed by the Central Bank. This month, the rate can reach a maximum of 300 bolivars per dollar. 

Venezuelan authorities hope that the new scheme will succeed in putting a handle on soaring inflation–topping 181% in December– by allowing the government to rake in greater revenue for its petro-dollars and thereby reduce the burgeoning gap with the parallel rate.  

On Wednesday, the parallel Dollar Today rate dropped from 1211.54 bolivars per dollar at 9:11 am to 1171.15 at 11 am, amounting to a 39.4 bolivar fall in the space of two hours. 

However, the DICOM rate only accounts for 7% of state transactions, with the remaining 93% of official government dollars bought and sold at the lower 10-bolivar “protected” rate.  

Some economists have criticized the retention of a lower rate as a source of macroeconomic distortions, tempting firms to acquire cheap dollars and fetch dizzying returns on the black market in lieu of investing in production and/or essential imports. 

Venezuelan Commerce Minister Jesus Faria has nonetheless touted the new measures as part of an effort to move “progressively” towards a unified exchange rate, though it is unclear when this change will take place. 

Last month, the Venezuelan Central Bank announced that it would begin printing 500 and 1000 bolivar bills while phasing out bills of smaller denominations in response to the ongoing collapse in the value of the nation’s currency.