Venezuela's Dollar Stockpile Threatened As Bolivar Sinks

Since declaring himself the winner of July’s presidential vote, Venezuela’s Nicolás Maduro has faced widespread condemnation from governments around the world, massive street protests, and alienation from some of his closest allies, according to Bloomberg News.

The bolivar is overvalued at the official rate, and the government needs to allow it to weaken.

Words

Now, a new issue is emerging for the authoritarian leader: the bolivar has tumbled in unofficial markets, trading up to 20% weaker than the official rate—the largest gap since 2022—as the supply of dollars the government injects into the financial system is running low.

Maduro, it appears, spent a significant portion of the country’s stockpiled money on campaign rallies in a failed bid to win voter support and secure a legitimate victory.

This growing crisis threatens to reignite a cycle of rapid inflation and currency devaluation that previously plunged Venezuela into a severe economic downturn, with an estimated 80% contraction in output over the past decade.

Maduro had stabilized the bolivar and slowed inflation over the past two years through austerity measures and limits on money printing, which provided some relief for Venezuelans. However, that fragile stability is now at risk.

According to José Manuel Puente, an economist at the Institute of Higher Education in Administration, a private business school in Caracas, the bolivar is overvalued at the official rate, and the government needs to allow it to weaken.