For longer than we care to remember the Venezuelan Bolivar has been pegged to the US Dollar. The peg as we know is artificially sustained and reminiscent of South America in the eighties. During the eighties, many countries in Latin America had two different currency markets: an official market where exporters were forced to sell their Dollars to the central bank, and where importers had to participate in Dollar auctions, in order to bid for the currency and be able to pay for their purchases abroad. There was also a “black market” which ran parallel and quoted the North American currency at a much more realistic level. This inevitably drove importers and exporters in general to do as much in their power as possible to bend, circumvent, or flatly break the law. Neo-liberal governments in the early nineties reverted this by floating the currencies and liberalizing the markets.
Embed from Getty Images
Of course Hugo Chavez and his successor, Nicolas Maduro seemed to be oblivious to this fact. After devaluating the VEB in favor of the new VEF or Bolivar Fuerte (strong Bolivar), the latter has been pegged to the US dollar for the last 10 years or so. But all that might me coming to an end. In recent elections the opposition gained control of the assembly which has diminished Maduro’s power, and could eventually see him out of office. The first job of any successor with half an ounce of common sense would be to float the currency, which would immediately drive it into a nose-bleeding dive. Not a bad time to be short the currency. Continue reading →
