In Venezuela, as is well known, an inflationary spiral and devaluation of the bolivar against the dollar has been in the air for some time in a rapid and fleeting way that has led to uncertainty about what the year 2023 could be for the Venezuelan exchange system .
In this sense, the Venezuelan Banking and Business portal published a note indicating the results of the study and record of the behavior of the exchange system in Venezuela, and how the Central Bank acted in the face of these fluctuations in the year that just ended.
According to the Venezuelan portal, the exchange intervention policy of the Central Bank of Venezuela (BCV), designed to relax the devaluation of the bolivar against the dollar, cost it an approximate amount of 5.4 billion dollars in 2022, which translates at an average of 450 million per month, and which would reflect an increase of 251.79% compared to the 1,535 million dollars the banking entity sold to Venezuelan commercial banks in 2021.
Despite the fact that in 2022 an even greater effort was made to contain the devaluation, even applying a strategy to regulate the issuance of monetary liquidity, the prices of the dollar in the year that just ended rose above expectations, This is due to the instability that occurred especially in the last four months of the year, when the demand for foreign currency increased and the supply contracted severely.
“The exchange market data allows two optics; a positive one that reflects a lower depreciation compared to 2020 and 2021, which were terrifying years in this matter, and a negative one that suggests that, despite the effort made, prices rose above most of the projections made at the end of 2021 and beginning of 2022”they pointed.
“As often as necessary”
Secondly, If the number of interventions that the Central Bank of Venezuela carried out in the year is counted, there are some 52 exchange interventions; but if the extensions (additional injections of liquidity) that became a regular practice in the second semester are included, the number of foreign currency sales to banks rises to 82a figure that allows reaching the highest annual volume since this policy was implemented in May 2019.
According to the records kept by Banca y Negocios, the month when the issuer injected the most foreign currency was August, with an estimated total of 824 million dollars, according to them, this coincides with the start of exchange rate instability and the acceleration of the dollar, both in the official market and in the parallel one.
And what for 2023?
From Banking and Business, they point out that if the theoretical exercise of estimating is carried out, based on the behavior registered in 2022, the official exchange rate in Venezuela could close this year at more than 60 bolivars. However, they raise the following question: Can a slowdown in the variation of the exchange rate be achieved?
In their opinion, the exchange and monetary strategy has important conditioning factors. The first is that the BCV has enough foreign currency to intervene in the exchange market and this means that oil activity recovers at a faster rate and additionally that export mechanisms are regularized. However, it should be noted that maintaining monetary discipline can be more complex, since the private sector’s capacity to generate sustainable economic growth is limited, so public spending must play a dynamic role, in the midst of an economic strategy. market that will progressively limit the influence of oil income.
“In addition, it is expected that the tripartite dialogue -Government, employers and workers- adopt decisions to progressively increase salary scales, which, in an economy with the dynamics of Venezuela, can generate inflationary pressures”they added.
The Economist César Aristimuño, CEO of Aristimuño Herrera & Asociadosargued that in light of the current circumstances, it seems difficult to predict a significant reduction in the speed with which the Venezuelan currency is devalued in 2023, but that it is possible if, together with maintaining monetary discipline, important reforms are made, such as allowing a greater circulation in foreign currency, reactivation of credit -both in bolivars and in foreign currency-, and the reduction or elimination of the cost that the Tax on Large Financial Transactions implies for operations with foreign currency, among other measures.
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