(Bloomberg) -- Venezuela's bolivar plunged more than 80 percent as the central bank restarted currency auctions for the first time since August as part of its efforts to ease a severe shortage of dollars and clamp down on hyperinflation.
One dollar bought about 25,000 bolivars at the auction, compared with 3,345 bolivars at the last so-called Dicom sale about six months ago. The rate announced Monday is still much stronger than in the black market, where individuals and businesses without access to the official markets pay about 225,000 bolivars per dollar, according to dolartoday.com.
The devaluation -- even if it falls short of the street rate -- represents a last-ditch effort by President Nicolas Maduro to remedy the dire economic crisis plaguing this oil-rich nation amid a scarcity of foreign exchange. The weakened Dicom rate -- now the only rate used for all official transactions -- allows the government to further stretch the amount of dollars it doles out for imports and will make businesses' purchases from overseas remarkably cheaper. It is also the rate used by foreign credit cards.
‘Significant Difficulties'
The Venezuelan government has imposed strict currency controls since 2003, limiting access to dollars for individuals seeking to protect their assets and businesses trying to operate in the country. Without hard currency, importers have struggled to stock store shelves, causing chronic shortages of everything from sugar to cancer medicines, and sending prices soaring.
The International Monetary Fund predicts inflation will spiral to 13,000 percent by the end of this year, while the economy is set contract 15 percent.
Despite the dollar drought, until last week authorities maintained a heavily-subsidized rate of 10 bolivars per dollar for buying essential items like food and medicine, from abroad. The state oil monopoly PDVSA also required many of its partners to use the preferential rate when calculating some taxes, expenditures and royalties.
Heavy Lifting
And while the rate was almost inaccessible to private businesses and individuals, authorities used it for over 70 percent of Venezuela imports, totaling some $11.9 billion, according to the Caracas consultancy Ecoanalitica. The distortion warped the Venezuelan economy and created lucrative arbitrage schemes for anyone with access to the preferential rate.
On the Dicom platform, the central bank holds weekly auctions in which users submit their bids for hard currency. The government abruptly shuttered the system last year following a series of U.S. sanctions.
In the results published on Monday, central bank Director Pedro Moldanado said U.S. financial sanctions created “significant difficulties” transferring foreign money between public and private users on the platform.
--With assistance from Fabiola Zerpa
To contact the reporter on this story: Andrew Rosati in Caracas at arosati3@bloomberg.net.
To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Brendan Walsh, Robert Jameson
©2018 Bloomberg L.P.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
