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From the most luxurious stores to the popular markets in Venezuela, the dollar has dethroned the bolivar, the local currency, and has become the lifeboat that citizens cling to in face of the high inflation that has pulverized the value of the local currency and has even reduced it to handicraft material.
In 2012, it was estimated that dollar transactions did not reach 5% of the total. Today, they represent 64.8% of the transactions, according to data from the financial analysis firm Ecoanalítica.
The prices displayed by almost all stores and informal vendors are in dollars, despite the fact that 42% of Venezuelans do not have access to that currency, according to a study conducted by Datanálisis last October.
The bolivar has been relegated to minor payments such as public transportation fares, public services and subsidized gasoline.
Under the complacent gaze of Chavismo, the face of Simón Bolívar has been replaced by that of Benjamin Franklin in transactions, especially in the growing informal economy, which constitutes the income of 84.5% of the citizens, according to the Survey of Living Conditions (Encovi) of the Andrés Bello Catholic University (UCAB).
The dollar in the Venezuelan economy
The chief economist of Ecoanalítica, Luis Arturo Bárcenas, explained to EFE news agency that the legalization in 2018 of the use of the dollar through the repeal of the Foreign Exchange Illicit Act—a law that established economic sanctions and prison sentences for those who used foreign currency for undeclared purposes—gave the green light to the process.
“The legalization of the use of foreign currency in Venezuela opened the way for businesses to start accepting the dollar as a means of payment without fear of being sanctioned and, with hyperinflation, many people preferred to use it,” commented Bárcenas.
Venezuela was then living under hyperinflation, which began in November 2017 and was considered overcome last January, and had registered a price increase that reached 130,060 % in 2018.
Dollarization accelerated with the prolonged blackouts in March 2019, when payments in bolivars were already almost impossible except by card or transfer, due to the scarce purchasing capacity that cash bills had.
Venezuelans came to face several daily devaluations that diminished the value and confidence in the bolivar, a problem that the regime sought to reverse with a monetary reconversion in October 2021, the third so far this century.
In it, they removed six zeros from the currency, with which, since 2008, they have erased 14 zeros from the bolivar, with the supposed purpose of fighting inflation, but what they have achieved is to continue destroying the local currency.
Lack of access to international currency
Bárcenas pointed out that Venezuelan dollarization is in a “financial” phase, which occurs when deposits in dollars begin to be made.
According to Ecoanalítica, in Venezuelan banks there are 760 million dollars in liquid foreign currency deposits at least up to last January 21, which represents 48% of the total.
“It is still not enough because a dollarization process is considered beneficial for the population when citizens have access to dollars on a recurrent basis,” he indicated.
Despite the fact that dollarization expands every year, it is not advancing at its own pace due to some limitations imposed by the Central Bank, which do not allow exchanges of foreign currency deposits between banks.
Venezuela also does not have mechanisms that can supply foreign currency in the market to permeate the economy and allow acquisition, saving and trading in foreign currency.
Bárcenas added that the limitations in the supply of dollars in the economy makes the “same amount” circulate “over and over again” in the country, which Ecoanalítica estimates at 2,600 million dollars in cash.
The insufficient supply of dollars, especially of low denomination pieces, is one of the biggest problems of the informal dollarization, since it makes it difficult for merchants to give change to consumers, who in many cases are forced to spend the full amount of the bill they have.