Venezuela’s Currency Crisis: The Bolivar’s Rapid Decline

This article is for informational purposes only and should not be considered financial advice. It does not constitute investment, trading, or economic guidance. Readers are encouraged to consult with financial professionals or conduct their own research before making any financial decisions.

Venezuela appears to face a major economic setback as its currency, the bolivar, continues to lose value at an alarming rate. In mid-October 2024, the government decided to let the bolivar float freely, meaning its value would be determined by supply and demand in the market rather than controlled by the central bank.
Since then, the bolivar has dropped from 36.5 to 45 per U.S. dollar, and experts warn it could reach 50 by the end of the year. This steep devaluation could undo years of progress in stabilizing Venezuela’s fragile economy.

Why Is Venezuela Letting the Bolivar Float?

For years, Venezuela tightly controlled its currency to prevent hyperinflation and economic instability. However, this system became difficult to maintain as the country struggled with low foreign currency reserves, economic sanctions, and declining oil revenues.
By allowing the bolivar to trade freely, the government aimed to:
– Reduce pressure on central bank reserves
– Attract foreign investment by making currency exchange more flexible

However, this move has backfired in the short term, with the bolivar rapidly losing value and inflation threatening to return.

What Happens Next?

The Venezuelan government has been intervening less in the foreign exchange market, allowing the bolivar to depreciate faster. If this trend continues, it could lead to:
– A return to hyperinflation, similar to the crisis Venezuela faced in the late 2010s
– More economic instability, making it harder for businesses to operate

Venezuela’s decision to float its currency was meant to bring stability, but it has instead triggered rapid depreciation and raised concerns about inflation. If the government fails to take action, Venezuelans could face another round of severe economic hardship.