Key facts
- Bolivia has ended its 15-year peg to the U.S. dollar, moving to a flexible exchange-rate system.
- The central bank will manage the transition, aiming to enhance economic stability and competitiveness.
- This policy shift is intended to normalize currency markets and increase investor confidence.
- The country is negotiating a significant financing program with the International Monetary Fund.
- The official exchange rate was adjusted to 9.73 bolivianos per dollar, marking a substantial devaluation.
Bolivia has officially abandoned its 15-year peg to the U.S. dollar, transitioning to a flexible exchange-rate system in a significant policy shift aimed at restoring economic stability and addressing a severe dollar shortage. The move, announced by the economy ministry and to be overseen by the central bank, seeks to strengthen macroeconomic stability, preserve external competitiveness, and improve the balance of payments.
The country has been grappling with dwindling foreign-exchange reserves and a widening gap between the official and parallel currency markets, where the dollar had at times traded near 20 bolivianos. The government had recently been using a reference rate of approximately 9.90 bolivianos per dollar for most transactions. Following the decree, the central bank updated its website to reflect an official rate of 9.73 bolivianos per dollar as of Monday, indicating a devaluation of about 30% from the previous buy rate.
This policy change comes as Bolivia negotiates a financing program of at least $2.5 billion, potentially around $3 billion, with the International Monetary Fund. The IMF had previously advised Bolivia to end the currency peg. However, challenges remain, with economist Gonzalo Chavez emphasizing the need for continued dollar inflows and sufficient central bank reserves.
The decision has faced opposition from labor groups, including the Bolivian Workers' Central, which have been protesting and blocking major roads since May. These groups demand the government rule out IMF borrowing, fearing austerity measures. The government, however, argues that external financing is crucial for rebuilding reserves, stabilizing public finances, and facilitating the transition to the new exchange-rate regime. President Rodrigo Paz recently declared a state of emergency to clear the blockades that have disrupted the economy for nearly two months.