Venezuela is dollarizing, but still in crisis

The Venezuelan crisis has reached a new stage: after prolonged hyperinflation and due to the total distrust of the fiscal and monetary authorities, the Venezuelan public is using the US dollar for daily transactions. According to market analysts, the share of transactions made in U.S. dollars reached 54% of all sales in the country during October. The lifting of exchange controls in Venezuela together with some companies’ decisions to pay workers in foreign currency and inflows of remittances from abroad have made this dollarization possible.

In a surprising move, socialist leader Nicolás Maduro said in a television interview on November 17 that the informal dollarization process “can be used for recovery … it is an escape valve (which contributes to the) recovery and deployment of the productive forces (of the Venezuelan economy),” although he also mentioned that the bolivar will continue to be Venezuela’s legal currency. (See: vQT8srugE1A.) These remarks stand in stark contradiction to Maduro’s policies since rising to power in 2013.

Informal dollarization has also given way to opportunities for consumers to access both basic consumer goods and other goods for the Christmas holidays. On November 29, some stores in the cities of Caracas, Maracaibo in the northwest, and Barquisimeto (centre-west) held “Black Friday” sales with discounts of up to 80% in an attempt to reactivate demand for consumer goods, which has fallen by more than 50% so far in 2019. Despite the sales, products offered in Venezuela remain far more expensive than those offered by the US market.

PDVSA and the Maduro regime offer Yuan payments to suppliers

While the Venezuelan public increasingly relies on the U.S. dollar, the socialist regime and its state oil company PDVSA have reportedly turned the yuan, given the impossibility of accessing financing in US dollars as a result of sanctions by the United States Treasury Department. At least four providers of services to the public sector report receiving payments in yuan in recent months. Administrative procedures involving China are more expensive for Venezuela, because the Constitution requires documentation certified by the National Assembly in order to open a bank account. It has also been reported that several state entities (including PDVSA) have made cash payments in euros, the proceeds of questionable sales of gold and oil by the Maduro regime.

Despite the embargo by the US, on November 26, the US company ConocoPhillips filed a motion in federal court in the state of Delaware seeking to seize shares of Citgo, a subsidiary of the Venezuelan state oil company PDVSA in the United States, to serve as compensation for the expropriation of assets in 2007. Last year the International Chamber of Commerce awarded ConocoPhillips $2 billion, but PDVSA has made only partial payment.

The United States imposes new sanctions on Venezuelan ships bound for Cuba

This week the United States government identified six vessels owned by the state-owned oil company PDVSA as blocked property. The vessels had been carrying clandestine shipments of crude oil destined for Cuba in exchange for Cuba’s assistance with security and intelligence. Cuba has been Venezuela’s main ideological ally since the Chávez regime and has continued to be Maduro’s main international support.

According to the US Office of Foreign Assets Control (OFAC), Venezuela also sneaked around 1,300,000 barrels of fuel oil to Cuba earlier in 2019. The resulting money was transferred to a bank account of Russian origin.

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