Venezuela currency in free fall

Venezuela's currency, the bolivar, has almost half its value this monthlost against the U.S. dollar. This makes November the worst month ever for the currency, which has become almost worthless in a few years.

According to DolarToday, a website that tracks the exchange rate on the black market, 2,753 bolivar is currently paid for a dollar. That is much more than the two official exchange rates of 10 and 661 bolivar per dollar. This official exchange rate is used for the import of most essential import goods, such as medicines.

However, for most businesses and consumers, this exchange rate only exists on paper, as the government's window only dispenses a very limited number of dollars. On the black market, where most of the bolivars are exchanged, the value of the currency has fallen by 69% since the beginning of this year.

Exchange rate between the bolivar and the dollar according to DolarToday

Too many bolivars

"The government has started injecting bolivars into the financial system and that is taking away suppressed demand. There are too many bolivars on the streets now. People have the option to buy either goods or dollars and they prefer dollars"Asrubal Oliveros of the Venezuelan consultancy Ecoanalitica, told Bloomberg.

Many economists and analysts have underestimated the depreciation of Venezuela's currency. For this year, inflation estimates ranged from 250 to 1,500 percent. The IMF has also already published its estimate for inflation for this yearrevise, from 700 to 1,640 percent year-on-year. According to Oliveros, the value of the bolivar on the black market could fall further to 3,500 or 4,000 against the dollar by the end of this year.

Larger banknotes

The money supply has increased by 127% since the beginning of this year, according to figures from the central bank. Money growth is likely to increase further next year as the central bank plans toNew banknotes with a much higher value. The largest banknote in Venezuela is the 100 bolivar with a converted value of less than $0.04. This will change from next month with the introduction of a series of new notes, with a face value of up to 20,000 bolivar (converted $7.27).

Inflation in Venezuela continues to increase, and the political situation is becoming more tense by the day. People prefer to protect their money by exchanging it for a stronger currency or for tangible value. Dollars and euros in particular appear to be in demand, but also Physical Gold has proven to be a safe haven for savers.

Venezuela's currency halved in value in November (Image from the Financial Times)