Caracas Chronicles

The recent widening of Venezuela’s exchange rate gap is the result of several factors intensifying an already complex currency landscape. Since the second half of last year, the official market—which fails to provide enough dollars—has been unable to meet the demand for foreign currency. This pushes individuals and businesses toward the black market, where their activity drives the exchange rate upward.

This situation has recently been compounded by new announcements from the U.S. government, such as the suspension of Chevron’s oil license and the imposition of 25% tariffs on any country trading hydrocarbons with Venezuela. These measures will likely reduce the country’s ability to generate hard currency, as it may have to sell its oil at lower prices. Even before these developments, the Central Bank of Venezuela (BCV) had already reduced its foreign currency sales compared to the same period in 2024. The combination of these factors has created the perfect storm for devaluation expectations, leading to a sharp spike in the black-market rate. At times, the gap between that and the official rate has surpassed 50%.

What’s left of the exchange control system that began a quarter of a century ago?

Today’s situation resembles earlier versions of the system: there’s an official exchange rate that serves as a reference point but offers limited access to citizens and businesses, and there are multiple exchange rates in play. This multiplicity affects how companies set their prices.

However, several elements set this episode apart. Most importantly, transactional dollarization is now much more widespread. The U.S. dollar is commonly used as a benchmark for pricing and transactions, offering more “stability” than when the bolívar was the primary currency. This shift stems from a more flexible exchange rate policy. While exchange controls still exist formally, they are now less strict thanks to mechanisms like currency exchange platforms and freely convertible bank accounts.

If the BCV allowed the official rate to match the black-market rate, it wouldn’t solve the depreciation problem, but it would eliminate the distortion caused by the dual exchange rates.

Today, the population also has more experience navigating volatile exchange rate environments and higher inflation, and has developed strategies to survive them as best they can.

What can we expect in 2025?

Given everything going on, there’s little reason to expect major changes in the short term. The BCV’s inability to supply enough dollars to the banking sector to contain the exchange rate has been evident for months, especially as demand for foreign currency rises in uncertain times.

Alternative protective tools once offered by the BCV, such as hedging bonds, have also become scarcer, as they are costly for the Central Bank and have stopped being renewed. This has sent a large amount of bolivars back into circulation, with people trying to convert them into dollars.

The BCV also seems unlikely to adopt the most straightforward solution to correct the distortion caused by the rate gap: allowing the official exchange rate to float freely. It’s important to recognize that Venezuelans are facing two different problems: the ongoing devaluation of the bolívar and the disparity between the official and black-market exchange rates. If the BCV allowed the official rate to match the black-market rate, it wouldn’t solve the depreciation problem, but it would eliminate the distortion caused by the dual exchange rates. For now, that doesn’t appear to be in the cards. The BCV is expected to continue adjusting the official rate in a controlled manner, which means the country will likely keep living with a gap fluctuating between 20% and 50%.

How could a possible reduction or halt in oil exports affect all this?

Oil exports are Venezuela’s main source of foreign income, so any disruption in that flow will negatively impact the availability of dollars domestically. With the U.S. suspending specific licenses and threatening to impose tariffs on countries buying Venezuelan oil, many of the doors for Venezuelan crude are closing.

As of the end of March, the unofficial exchange rate had increased by 160% year-over-year, while the official rate had risen 91%—both well above the pace from 2024.

As a result, PDVSA will need to redirect that oil to other markets, such as Asia, where buyers will likely demand steep discounts—between 20% and 30% off market prices, as has happened before. Additionally, with partners like Chevron leaving, PDVSA will have to find new allies to maintain its export volumes or attempt to do so on its own, which presents major challenges.

One possible offsetting factor is that some of these licenses included oil-for-debt repayment agreements. If those are suspended, Venezuela won’t have to keep sending oil to pay off debts, freeing up more barrels for commercial use. However, this won’t be enough to make up for the revenue losses from producing and selling less oil at lower prices.

Are we at risk of returning to hyperinflation?

After achieving the best inflation and devaluation numbers in nearly a decade during 2024, it’s clear that 2025 will bring a renewed acceleration of both indicators. As of the end of March, the unofficial exchange rate had increased by 160% year-over-year, while the official rate had risen 91%—both well above the pace from 2024. Inflation is expected to follow a similar trajectory, likely returning to triple digits.

Having said that, it won’t be enough to plunge Venezuela back into hyperinflation. Still, it will generate significant uncertainty for individuals and businesses, with clear consequences for their purchasing power.