Business & Economy

Venezuela’s efforts to contain dollarization spark increased bolivar use

By Carlos Seijas Meneses

Caracas, Mar 14 (EFE).- Although the US greenback is used even for purchases of gasoline in oil-rich Venezuela, the government’s efforts to check the dollarization process have spurred a revival in the use of the local currency over the past year, experts say.

According to studies by the Ecoanalitica consulting firm in 10 of the country’s main cities, foreign-currency (mainly dollar) transactions currently represent 45 percent of the total, down from 66 percent at the end of 2021.

By contrast, whereas only 34 percent of transactions were conducted in bolivars at the end of 2021, that share has since risen to 55 percent.

Economist and university professor Jesus Palacios told Efe that some sub-sectors that had been highly dollarized, such as appliances, electronics and parts, are now once again seeing a very significant number of bolivar transactions.

The main driver of these changes has been a 3 percent levy – the so-called Tax on Large Financial Transactions (IGTF) – on foreign currency purchases.

A manager of a Caracas supermarket, who spoke on condition of anonymity, told Efe that “people prefer to pay in bolivars so they don’t pay the tax.”

She said the retail sector has asked the government to “seriously consider” repealing the IGTF, arguing that it has had an impact on each link in the supply chain and caused prices for end consumers to rise “between 12 and 14 percent.”

The store manager said a total of 75 percent of transactions are currently in the local currency and the remaining 25 percent in foreign currencies, whereas a year ago it was “50-50,” she added.

In that regard, Datanalisis told Efe that, according to its calculations, 70 percent of transactions in the country are in bolivars and the rest in other currencies, while a year ago the situation was reversed.

Palacios said the government also took additional measures that led to a reduction in the use of foreign currencies, including the “suspension of bank transfers in dollars” and later an increase in the fee for foreign currency withdrawals from less than 1 percent to 3.8 percent.

He explained that if the government were to allow dollarization to advance unchecked “it would lose the power to use the bolivar as a lifeline.”

Even so, the government does not intend to get rid of transactions in US greenbacks altogether because dollarization has lent “dynamism to economic activity,” Palacios said of recently improved conditions in a leftist-led country that has endured years of economic crisis brought about in part by severe US sanctions on Venezuela’s lifeblood oil industry.

Dollarization has particularly benefited the “retail (sector), which has rebounded most strongly,” he added.

Despite the increased use of the bolivar, the dollar continues to be used to set the prices of goods and services and for savings purposes due to the continued depreciation of the local currency.

Between March 10, 2022, and March 10, 2023, the bolivar declined in value by 82 percent relative to the dollar (from 4.33 bolivars to 24.14 per greenback), according to the Central Bank of Venezuela. EFE


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