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a plague o both your houses

Venezuela parallel rate update

Here’s the chart:

The latest from Hugolandia’s finance scene is the Central Bank’s honcho Merentes, who says that the country is committed to a stronger parallel exchange rate and is aiming for that previously announced 60% breach between the official Bolivar Fuerte (VEF) forex of 2.15 against the dollar and the permuta rate (which would mean it exchanges at 3.40 or so against the USD, not the current 5.30 to 5.50).

This is, of course, bullshit pie-in-the-sky and he knows it (if he doesn’t WTF is he doing as head of a Central Bank?), so his speechifying can only be put down to either jawboning or LSD tablets. Just check the number of VEFs in circulation right now, compare it against currency reserves, do the math we’ve done here on many occasions previously and you’ll see that a parallel rate under 4.5 is about as likely as Eva Golinger admitting she was wrong about Michael Moore.

The VEF got to 5 recently on the back of a very popular bond emission and then a slightly-less-popular-but-still-worked-fine bond emission. The fate of the VEF parallel rate is tied directly to the number of dollars in the country compared to the number of VEF…it really is that simple in the long run. Jawboning about super secret cunning plans to come is all well and good, but it won’t ever move the market permanently. So here’s what you have to remember:

Vz Govt issues dollar bonds = people buy dollar bonds with VEF = less VEF in circulation in country = stronger exchange rate.

VZ Govt doesn’t issue dollar bonds = more VEF in the country = weaker exchange rate.

The rest is noise.

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