CARACAS, Monday February 04, 2013 | Update

Parallel forex rate spurs inflation in Venezuela

Parallel US dollar impacts expected replacement cost

Prices of vehicles swells as the US dollar in the parallel market soars (File photo)
Monday February 04, 2013  04:19 PM
Although five years ago ruling party members made it through to pass a law banning the publication by any means of the value of the US dollar on the parallel market so as to avoid imbalances in the foreign exchange rate, the action has not yielded positive results in a stubborn economy.

Today, the foreign exchange rate appears daily on websites, and the US dollar strongly impacts a large number of products.

In an economy where inflation yearly hits purchasing power, everyone experiencing surplus in bolivars seeks to buy US dollars. Moreover, those who decide to sell their houses or cars set the price of the property prior consideration of the amount of US dollars that can be used to obtain on the parallel market.

Likewise, people involved in business and who ignore whether they would be able to buy US dollars at the official foreign exchange rate set the price of the products they intend to sell based on the value of the US dollar on the parallel market, where they will certainly be able to buy US dollars timely.

Between two elections  in 2012, the Venezuelan Government spurred public expending and introduced a great deal of money into the economy. Most of the money ended on the parallel market.

As a result, the rise in demand catapulted the value of the US dollar and the gap between the official forex rate VEB 4.30 (sold by the Foreign Exchange Commission Administration, Cadivi) or VEB 5.30 (sold by the  Transaction System for Foreign Currency Denominated Securities, Sitme) per US dollar widens as never before, bringing significant consequences.

Economist and Professor Pedro Palma has stressed, "attention must be paid to the black market. It is a significant market that highly determines the US dollar value for common citizens. Therefore, it substantially indicates prices based on expected replacement cost that stems from the Venezuelan economy."
The end of a cycle

Hundreds of thousands of demonstrators took to the streets of Brazil on March 13 to demand the ouster of embattled President Dilma Rousseff, carrying banners expressing anger at bribery scandals and economic woes. A banner read "We don't want a new Venezuela in Brazil."

fotter Estampas
fotter Estampas