Venezuela needs to devalue the nation’s currency, the bolivar, or risk inflation topping 1,000 percent as early as 2015, according to Bank of America, Bloomberg reported on Tuesday.
Under Venezuela’s current system, an overvalued bolivar means that the government effectively sells U.S. dollars it earns from oil exports at a discount, compelling policy makers to print additional currency to cover domestic spending needs.
In Venezuela, currency controls limit Venezuelans’ access to U.S. dollars, which has thus spawned a black market in which the dollar fetches around 172 bolivars, compared with the officially sanctioned exchange rates that range from 6.3 to about 50 bolivars per dollar.
“If we don’t see a large adjustment of the exchange rate, we’re almost certain to have triple-digit inflation and I wouldn’t be surprised to see the economy veering into four-digit annual inflation,” Francisco Rodriguez, the chief Andean economist at Bank of America, told Bloomberg during a phone interview on December 28.
The government “needs to print money to finance the deficit and it is running a deficit because its revenues in bolivars are too low,” he added.
Rodriguez is the former chief economist for the Venezuelan National Assembly who co-edited the book “Venezuela Before Chavez: Anatomy of an Economic Collapse” with Harvard University professor Ricardo Hausmann. He taught economics at Wesleyan University before joining Bank of America in 2011.
Venezuelan President Nicolás Maduro is set to announce a new currency system on Tuesday, December 30, and will detail the changes in a televised address that is due to start at 3:30 p.m. EST.