Bolivars and dollars reflect the economic struggle in a country marked by devaluation and inflation. Photo: Courtesy.
Guacamaya, April 10, 2025. In Venezuela, the exchange rate differential has been a phenomenon that has profoundly affected the economy at all levels for years, and, of course, the daily lives of its citizens. Since 2024, this issue has worsened, and the current percentage of the gap, calculated between the official rate set by the Central Bank of Venezuela (BCV) and the parallel rate, is approximately 43.16%.
This situation has led to uncertainty, primarily in commerce, making it common to see price adjustments in dollars to cover potential losses due to exchange rate volatility. Along these lines, given the magnitude of the gap, the informal market has popularized the concept of the “average dollar,” calculated by combining both rates to produce a “more flexible” exchange value.
Inflation plays a key role in this dynamic. On one hand, it acts as a factor that intensifies the differential, as the erosion of the bolívar’s value increases the demand for foreign currency, impacting replacement costs. On the other hand, it manifests as a consequence, as price adjustments in dollars to mitigate losses ultimately translate into higher costs for goods and services.
This creates a vicious cycle that perpetuates economic distortions. Inflation drives greater fluctuations in the exchange rate, which in turn fuels further price increases in both bolívars and dollars. While various factors contribute to these dynamics, the lack of effective measures severely impacts purchasing power and economic stability.
Inflation and devaluation amplify the gap
As previously mentioned, each sustained increase in inflation directly contributes to amplifying exchange rate variations. Venezuela closed 2024 with accumulated inflation of 48%, according to data presented by President Nicolás Maduro during his Memoria y Cuenta, figures that contrast with the 61.5% estimated by Ecoanalítica and the 85% calculated by the Venezuelan Finance Observatory (OVF).
In either case, the exchange rate also reflected corresponding increases. In 2024, the bolívar depreciated by 30.9% against the dollar in the official market, as indicated by a 44.8% rise in the price of the U.S. currency. In the parallel market, the increase was even greater, reaching 70% during the same period, further widening the exchange rate gap to over 27%.
In more recent data, the OVF reported inflation in Venezuela for March 2025 at 13.1%, bringing cumulative inflation for the year’s first quarter to 36%. Additionally, the institution noted that during March, the bolívar suffered a 13% depreciation, while the official exchange rate increased by 32.7% over the first quarter, demonstrating the economy’s high level of dollar indexation.
The bolívar’s depreciation drives greater demand for dollars as a safe-haven asset, increasing pressure on the parallel market. This growing demand not only raises prices in the informal market but also magnifies fluctuations in the exchange rate differential, impacting the country’s economic dynamics.
Oil sanctions hit foreign currency revenues
Another major factor behind Venezuela’s exchange rate differential is the impact of international sanctions, particularly those targeting the oil sector. According to data from Ecoanalítica shared with BBC Mundo, 85% of the country’s income comes from crude oil exports, which totaled $15.4 billion in 2024, with Chevron and other international partners contributing 30%.
The cessation of Chevron’s license, formalized by the Office of Foreign Assets Control (OFAC) in March 2025, marked a critical turning point. A previous Guacamaya article had already highlighted the potential implications of this decision for Venezuela’s economy. According to Ecoanalítica, this measure could result in a loss of $4 billion to $4.5 billion this year and eliminate a key source of foreign currency for the country.
The absence of these revenues, according to data from the firm, not only destabilizes the exchange market but also aggravates internal economic tensions. Additionally, the limited access to foreign currency represents a significant obstacle to the development of the private sector, as Luigi Pisella, president of Conindustria, noted in the same article.
2024 elections as a turning point
In the political realm, the 2024 presidential elections worsened the economic problem. During the “Perspectiva País 2024” discussions organized by Medianálisis and Centro Gumilla in October 2024, economist Luis Oliveros highlighted that the exchange rate and the gap widened significantly following Nicolás Maduro’s contested reelection.
“2024 in Venezuela is clearly divided into before and after July 28. In the early months, the Central Bank reported economic growth of 8.5%, with a fixed exchange rate and a low differential. However, after that date, the parallel exchange rate began to skyrocket,” Oliveros stated.
The economist explained that in July, exchange interventions exceeded $1 billion, representing a significant increase compared to previous months. This was likely part of a strategy to generate political confidence ahead of the election, processes that typically trigger demand amidst uncertainty.
However, during August and September, the injection of foreign currency by the state dropped to less than half, causing a spike in the country’s risk premium. This situation, combined with post-election political uncertainty, further eroded citizens’ trust and intensified demand for foreign currency as a safe-haven asset.
Reduced exchange interventions and their impact
The sharp decline in foreign currency injections by the BCV has fueled the rise of the parallel dollar. César Aristimuño, director of the consulting firm Aristimuño Herrera & Asociados, told AFP that in 2024, $5 billion were allocated to exchange interventions, while in 2025, this figure plummeted to $634 million.
Additionally, increased public spending and monetary liquidity have been key drivers in accelerating inflation and exacerbating exchange distortions. According to calculations by Cedice Libertad’s Public Spending Observatory, Venezuela’s monetary base reached Bs.111.7 billion in January 2025, an 11% increase compared to December 2024.
Furthermore, Guacamaya’s own calculations based on BCV data showed that liquidity also rose during the year’s first quarter, reaching Bs.212.663.63 million, a 21.33% increase compared to late 2024.
Although the BCV has implemented measures such as reducing monetary liquidity by up to 6.19% in specific weekly periods in 2025, high volatility and lack of trust in the local currency have limited the effectiveness of these policies, perpetuating sustained growth trends.
Distortions and the collapse of purchasing power
The ongoing depreciation of the national currency against the dollar has severely impacted Venezuelans’ purchasing power, particularly for those receiving minimum wages and pensions. Venezuelan wages have not been adjusted since March 2022, when they were equivalent to $30.
As of the publication date, the minimum wage equivalency stands at just $1.75 per month in the official market and $1.25 in the parallel market, highlighting the severe depreciation of the bolívar. Economist José Guerra told Diario Las Américas that this situation underscores the economic difficulties and the lack of coherent policies to build trust in the national currency.
Jesús Palacios, senior economist at Ecoanalítica and university professor, explained to EFE that the current exchange rate gap “creates significant noise” and “causes distortions everywhere,” affecting both merchants and consumers. According to Palacios, businesses struggle to establish adequate pricing strategies, while many consumers receive their salaries calculated at the official rate.
The informal economy as a response to the gap
Another challenge related to the widening exchange rate differential is the growth of the informal economy, which has become a survival strategy for many. In this sector, people have started exploring solutions, such as adopting a new reference: the average dollar, calculated by combining the values of the official and parallel dollars and dividing them by two.
According to the Venezuelan Finance Observatory, informal employment accounts for 21.95% of the country’s economic activities, surpassing even the private sector’s 19.26% and the public sector’s mere 13.79%. This reflects how instability and low income in formal jobs have pushed a significant portion of the population to operate outside regulatory frameworks to avoid losses and improve earnings.
Economist Manuel Sutherland, speaking with Banca y Negocios, noted that in countries with fragile economies and extremely low minimum wages, like Venezuela, a large part of the population turns to independent work as the only viable option. “Venezuela has the second-lowest minimum wage in the world, second only to Burundi,” Sutherland added, illustrating a severe crisis driving informality and self-employment.
Financial Planning and Private Sector in Crisis
Furthermore, exchange rate volatility has created significant challenges for financial planning. Both businesses and citizens face difficulties in projecting costs and budgets due to constant fluctuations. Additionally, the coexistence of multiple exchange rates generates confusion and conflicts in commercial transactions.
Regarding the private sector, businesses are grappling with higher operating costs and challenges in accessing imported supplies, which limits their competitiveness in an already difficult environment. Sutherland also suggests that “it is very difficult to establish industries and factories” due to strict process controls that hinder economic development.
These dynamics not only undermine the ability of businesses to emerge or stay afloat but also worsen economic inequalities and widespread uncertainty. Factors such as inflationary pressures, the lack of financial support for small businesses, and high tax burdens remain significant barriers to the creation of stable and sustainable jobs.
Inflation as a Consequence That Completes the Vicious Cycle
Inflation, apart from being a cause, is also a consequence of economic distortions, and the exchange rate differential plays a crucial role in this phenomenon. The coexistence of multiple exchange rates—official, parallel, and average—not only causes confusion in commercial transactions but also drives a sustained increase in the prices of goods and services, even in dollars.
Inflation, which closed the year at a concerning 48%, according to official figures, could soar to 80% due to the rapid depreciation of the bolívar and the need to print more local currency, as warned by Síntesis Financiera. For OVF director José Guerra, the outlook is even bleaker, as inflation could surpass 200% in 2025, reflecting the cumulative impact of these dynamics.
During the first quarter of 2025, the parallel dollar reached alarming levels, surpassing 100 bolívares per dollar at times, while the official rate remained significantly lower. This exchange rate gap not only affects consumers, who face higher prices, but also merchants, who must continuously adjust their pricing strategies to stay afloat.
The exchange rate differential in Venezuela, far from being just a financial indicator, reveals the deep structural distortions affecting the country. Addressing this issue requires comprehensive measures, including stabilizing the economy, restoring confidence in the bolívar, and implementing coherent exchange rate policies.
Meanwhile, the Venezuelan population demonstrates remarkable resilience and adaptability in an economic environment marked by volatility and uncertainty.
