Venezuela Devalues Its Currency

By admin on February 9, 2013

Venezuela just undertook a massive currency devaluation, re-pegging the bolivar to a value of 6.3 per U.S. dollar from its previous official exchange rate of 4.3 bolivars per dollar.

The government also announced that it would shutter the Venezuelan currency exchange system known as SITME.

Given the currency devaluation underway in other economies around the world right now – perhaps most notably in Japan – a few are calling this Venezuela’s foray into the global “currency war” between countries trying to devalue their currencies in order to increase export competitiveness.

However, Venezuela appears to be having a different sort of problem. The country is experiencing a shortage of U.S. dollars, which is making it hard for the country to pay for imports.

Bloomberg’s Corina Pons & Nathan Crooks reported on Monday:

The government isn’t considering a devaluation at the moment given its strong balance of payments, the official said. The goal is to improve the supply of dollars while keeping in place existing currency controls, said the official, who spoke on condition of anonymity because no final decision has been made.

Last week the government took its first step to increase the supply of dollars in the economy by channeling more of its oil exports revenue to the central bank. South America’s biggest oil producer is facing shortages of goods ranging from diapers to cars as the lack of dollars crimps imports. In the black market, the bolivar has weakened 53 percent to 18.39 per U.S. dollar in the past year, according to Lechuga Verde, a website that tracks the rate.

Venezuelan President Hugo Chavez spent a ton of money (fiscal stimulus-wise) getting re-elected, and it’s left the government with a pretty serious budget deficit.

As Bloomberg’s Charlie Devereuz and Jose Orozco explain, “The move can help narrow the budget deficit by increasing the amount of bolivars the government gets from taxes on oil exports.”

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