Parallel forex rate spurs inflation in Venezuela
Parallel US dollar impacts expected replacement cost
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."
President Nicolás Maduro is not only the heir to the throne, but also to an economic crisis which demanded urgent measures to rectify the course. The crisis showed up in two aspects: a 50% inflation estimate, and shortage of staples ranging between 70% and 98%. These issues might hit the President's poor popularity; considering his feeble electoral victory of 1% over his challenger.