Venezuela’s currency market has remained relatively calm for several days, but monetary policy is once again beginning to impact the economy. The Central Bank of Venezuela (BCV) accelerated the issuance of bolivars, and the exchange rate returned to an upward trajectory.
According to BCV data, monetary liquidity, or the amount of money in the hands of the people, is The week ending January 16th saw an 8% increase. Thus, 948,419 million bolivars circulated in the national economy.
The acceleration in money creation comes after a notable decline of -6.5% in the week ending January 9th. 878,165 million bolivars were in circulation.
This rebound occurred in a local context. Since last week, the government has been paying out so-called “economic war bonuses”. These incentives are deposited on the Patria platform in bolivars. The amount ranges from 50 USD to 120 USD at current exchange rates.
At the same time that currency liquidity has increased in Venezuela, so has the price of the bolivar-denominated US Dollar Tether (USDT), which is traded on major P2P markets such as Binance.
The digital currency has appreciated by 15% in one week compared to the Venezuelan currency. It rose from an average of 460 bolivars seven days ago to 530 bolivars at the time of writing this report. This can be seen in the following graph.
This increase in USDT is not subject to deliberation, but Because that’s part of the inflation factor. In Venezuela, it must be assumed that a stable cryptocurrency issued by the company Tether Limited is used as a reference for the Caribbean country’s unofficial exchange rate. Especially at the level of informal commerce.
Therefore, when USDT reacts in this way, prices for Venezuelan goods and services tend to rise. Therefore, the cost of living for Venezuelans increases.
What do the experts think?
To dig deeper into this topic, CriptoNoticias spoke to several experts in economics and cryptocurrency issues. They are Aaron Olmos, an economist and university professor, and Daniel Pelaez, an economist and teacher.
Both experts believe that the large injection of bolivars in addition to the limited foreign currency supply will The scenario depicts high volatility for the national economy.
Olmos is a professor at the Institute for the Advanced Study of Public Administration (IESA), where his research focuses on the disconnect between the growth of currency in circulation and low productivity in countries.
As this economist explains, we must always consider that “inflation is not only fixed by lower prices or more dollars; in principle, inflation is fixed by increased production.”
According to his analysis, the roots of the imbalance are clear. “Whenever the amount of bolivars in the economy increases and that increase is not accompanied by production capacity, excess liquidity or surplus bolivars in that amount is always a problem, because it drives up prices,” he points out.
Pelaez, a former professor at Margarita University, reinforces this idea by pointing out that: Increase in money supply directly affects market sentiment.
“The key point is increased liquidity, but that could quickly turn into currency pressure,” the expert said.
“Especially if the dollar amount is the same, but people feel they have more bolivars,” he warns.
Pelaez, a Bitcoiner and P2P investor, explains that money expansion becomes important when “the expansion of money is not accompanied by something reliable.” “That means fiscal policy, monetary policy and even exchange rate policy,” he explains.
USDT as a refuge in Venezuela
Once liquidity reaches the system, Markets seek refuge in rapidly transforming digital assets. Pelaez asserts that citizens are relying on stablecoins due to lack of access to physical currency.
“Particularly in our country, USDT has served as a kind of instant-access digital dollar, because it does not respect holidays or weekends and works 24/7, especially in the P2P market,” he points out.
That makes sense considering that the Venezuelan bolivar is the most active fiat currency on Binance P2P. CriptoNoticias reported that more than 220,000 updates on its platform were registered in the order book in Bolivar. Along with this, Offer volume over $5.3 millionaccording to data from P2P.Army.
For Pelaez, this movement is not speculative, but a movement for survival. This is because “part of the bolivar seeks cover, that is, to protect itself from the inflationary process.”
But this digital haven will ultimately dictate price patterns on the street.
Aaron Olmos highlights, “The price adjustment transmission mechanism for USDT crypto assets appears to be much faster than other mechanisms that could affect us.”
This speed, this alertness, cause instant distortionaccording to Olmos, “Without this clarity, everyone ends up doing what they think is in their own interest, and unfortunately this further harms Venezuelans.”
“The fact that the base exchange rate price of stable crypto assets continues to rise further complicates matters,” he laments.
Lack of physical currency adds fuel to the fire
Olmos also remembers Currency gap widens ‘dangerously’ Moreover, the public’s dissatisfaction with the shortage of foreign currency through banks is “adding fuel to the fire.”
For economists, the current direction of the economy is worrying. The reason is that “the rate of growth of the dollar relative to the loss of purchasing power of Venezuelans (…) is harmful and terrible for Venezuelans’ salaries.”
However, if the oil trade between Venezuela and the United States maintains the flow of dollars to the national bank and stops currency printing, Exchange rate differences may narrow And we believe that the exchange rate will tend to stabilize, as happened in the first few days of January.
Venezuela’s economy begins this year under unusual circumstances, shattered by the pace of money printing. The possibility of stabilization depends on a delicate balance between oil revenues and fiscal discipline. But as long as the bolivar continues to lose out in the currency race, USDT will remain not only a haven of value, but one of the favorite price benchmarks in an economy that knows how to embody volatility.
