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Venezuelan Currency Crisis For International Investors?

Published on 8 February 2017 in News - Pages by Raffick Marday

Venezuelan Currency Crisis For International Investors?

If you have businesses, investments or relatives in Venezuela, then you must have felt the pinch of the ongoing currency crisis. The once vibrant Latin American economy has suddenly turned into a financial desert characterised by a free-falling currency and frenzied fiscal policies. In less than two years, what started as typical political activism has escalated into a political turmoil that’s threatening to tear down the once promising economy. Local businessmen and women, as well as international investors, are worst hit by the crisis. But is there a possible recourse to the crisis?

Current situation of the Venezuelan currency

By the start of 2016, the Venezuelan currency had already embarked on a downhill race against the dollar with exchange rates further dwindling day in day out. For instance, in a historical hyperinflation move, the Venezuelan Bolivar lost 45 percent of its value against the dollar in November alone. This not only made the Bolivar worthless on the open market but also worsened its performance in the black market. By the first of December, investors would require as much as ten bolivars for exchange with a dollar.

Since then, the government’s half-thought deflationary moves have aggravated the situation thus escalating it from bad to worse. In an attempt to cap opposition's influence and access to foreign aid, the ruling government resulted to the currency depreciation moves. This has seen the further devaluing of the Bolivar in the face of other international currencies, especially compared to the dollar. So far the country’s highest denomination, 100 bolivars is now worth roughly 3 cents in American dollars, and the case is worsening with every rising day. Not even the most pessimistic analysts predicted such as low for the “strong-Bolivar.”

Final nail in the coffin

At the beginning of the month, there emerged rumours that international financiers and governments were hoarding Venezuela’s highest denomination, the 100 Bolivar bill. The move would have helped further depreciation by making the currency scarce in the market and thus preventing further amortisation of loans, grants and other international investments in the country by foreigners and international donors. In a counter move, the Venezuelan president issued a decree nullifying the validity of the 100 Bolivar bill.

On December 11, the government called on all Venezuelans to head to the national banks and have the bill changed to other denominations warning it won’t be accepted as a means of exchange after ten days. In effect, businesses and even small banks stopped accepting the bill. This latest move has further paralysed the already crippled economy.

Currency options available to businessmen and investors

There are still some international entrepreneurs that can’t afford to halt operations with the country and so are nationals waiting on aid from their relatives abroad. What currency options do they have if they are to survive this economic turmoil? For larger business operations and transactions, it is only wise that the businessmen result to only trading using the American Dollar.

Alternatively, citizens along border lines can result to using neighbouring country’s currencies before the dust settles at home. These two methods have previously worked in such countries as Zimbabwe that recently endured similar hyperinflation and can also work in Venezuela.

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