According to the consulting firm Aristimuño Herrera & Asociados, the Central Bank of Venezuela (BCV) has injected some 2.2 billion dollars into the market in the last five months increasing the supply of the greenback, reviled for years by the power which regularly criticizes American imperialism.

In 2019, faced with widespread shortages, crippling hyperinflation and a sluggish economy, Caracas, after 15 years of prohibition, crossed the Rubicon, allowing the circulation of the dollar which took precedence over the bolivar.

Liquidity in bolivar is increasing, but that in dollars – which circulates widely outside the banking system – is now more than four times higher, according to private estimates.

Annual inflation remains the highest in the world with 686% in 2021 according to the BCV, but very far from 130,000% in 2018, 9,585% in 2019 and 3,000% in 2020.

"By circulating more dollars than demand, you generate exchange rate stability," César Aristimuño told AFP.

Without disclosing the amounts, the BCV recognizes 29 "interventions" since October 2021, the date of the new monetary conversion.

The authorities then removed six zeros from the bolivar (1 million becoming 1 bolivar) for accounting reasons while promising to restore confidence in the local currency.

At the same time, Caracas introduced a 3% tax on foreign exchange and cryptocurrency transactions.

"The legal currency is and will remain the bolivar," Venezuelan Vice President Delcy Rodriguez, also Minister of Economy, insisted on Tuesday.

What about reservations?

Since October, the official dollar rate has fallen from 4.18 to 4.34 bolivars, an almost negligible depreciation of 3.69% after reaching 76% in 2021 until the conversion and more than 95% in 2018, 2019 and 2020.

But, as Henkel Garcia, director of the Econometrica firm, notes, this policy of injecting dollars is only possible because of the "small" size of the economy, with a gross domestic product (GDP) which has fallen. by more than 80% between 2013 and 2020. It rebounded, according to the government, to 4% in 2021.

A fruit seller shows bolivars and US dollars on January 12, 2022 in Caracas, Venezuela CRISTIAN HERNANDEZ AFP

“The question is how long you can maintain” this policy of injecting dollars, he underlines.

Some accuse the government of "burning" international reserves, but the two experts believe that the dollars put on the market come from the increase in oil revenues.

After seeing its production fall from 3 million barrels/day (2014) to a historic low of 400,000 in 2020, Venezuela is starting to climb back up (680,000 in 2021 according to OPEC), also benefiting from a price of barrel up sharply.

The BCV reports reserves of 10.8 billion dollars, less than half of the reserves of 2014. It includes the 5 billion assigned, but still not paid to Venezuela due to the political crisis, by the International Monetary Fund (IMF) to increase liquidity around the world during the Covid-19 pandemic.

If the injection of dollars has beneficial effects, there is "collateral damage", underlines Mr. Aristimuño.

On the one hand, as inflation remains very high and the exchange rate changes little, the purchasing power of the dollar tends to decrease...

On the other hand and above all, "exports lose their interest" in favor of imports.

Carlos Fernandez Gallardo, president of Fedecamaras (employers), is worried: "there is an increase in the cost in dollars for the producers, with a pernicious effect on the consumer", he is alarmed, stressing that the park industrial operating at 27% of its capacity.

"What will happen if these dollars disappear?"

In 2018, in order to fight against inflation, the authorities raised the reserve requirement rate for banks to 85% to limit the creation of money.

This contributed to further depressing credit, which was already in free fall with the collapse of the bolivar.

Venezuelan oil Patricio ARANA AFP/Archives

Venezuela is now a credit dwarf with $140 million in 2021 compared to $14 billion in neighboring Colombia.

Aware that credit, investment and growth are closely linked, the government backtracked somewhat in February, authorizing dollar-indexed loans under certain conditions and reversing the reserve requirement rate, now at 73%.

Objective: to support growth, but avoiding an inflationary spiral.

© 2022 AFP