Border reopening unleashes battle between Colombian peso and Venezuelan dollarization

Even though Venezuela is undergoing a de facto dollarization process in several sectors of its economy, in the border zone with Colombia, the situation presents several nuances given the important participation of the Colombian peso (COP), which is the second-most traded foreign currency in daily operations in that country after the US dollar (USD).

According to a report by the Venezuelan consulting firm Ecoanalítica, the dollar participates with 45% of the transactions in that country, the Venezuelan bolivar (VES) contributes with 42%, and the Colombian peso with 8.5%, even more than the euro (EUR), which has a share of 3.5%.

However, in the border state of Táchira, it is estimated that the Colombian peso participates in more than 90% of the transactions as financial platforms become more widespread in this crossing.

Last year, the Venezuelan financial entity Banco Bicentenario even endorsed opening accounts in Colombian pesos in the 29 municipalities of Táchira state.

According to residents of the area consulted by Bloomberg Línea, with the arrival of Gustavo Petro to the Colombian presidency, dollarization on the Venezuelan border gained strength.

The bolivar is almost non-existent for daily use, even for those who make their purchases in dollars. Instead of receiving the change in the local currency, they get pesos, calculated below the rate imposed by the Colombian Central Bank or the exchange houses.

The rate applied by traders on the Venezuelan side of the border is COP 4,000 per dollar, lower than the COP 4,404 per US currency officially averaged in Colombia, according to Bloomberg Línea.

Expectations regarding the forthcoming border opening, after a seven-year closure, are scarce in terms of real changes in the exchange rate in the border states of both nations.

In the absence of agreements or explicitness in areas such as public transportation or monetary policies, the inhabitants of San Antonio del Táchira see little likelihood that the currency triad will cease, as well as the smuggling of goods, considering that the same conditions in that sense will continue.

Colombia shares with Venezuela a border of more than 2,219 kilometers. The Simón Bolívar International Bridge, one of the most strategic points, connects the Colombian territories of Cúcuta and Villa del Rosario with the Venezuelan San Antonio and San Cristóbal.

The Colombian Government has already announced that from September 26, the border and the air connection between both countries will be reopened to reestablish the currently weakened commercial flow between both countries.

“In the border, much has had to do with the “pesification”, that is, many of the transactions are being made in pesos,” the Colombian Minister of Commerce, Industry and Tourism, Germán Umaña, told Bloomberg Línea.

He also commented that many export transactions are being closed in Colombian pesos between both markets.

Germán Umaña considered that the phenomenon of de facto dollarization in Venezuela does not represent a problem as long as it is managed within the framework of the binational exchange relationship.

“But the risk of other types of operations always exists, but it is not necessarily happening at this moment,” he added.

Clara Inés Pardo, Ph.D. in Economics and professor at the School of Administration of the Universidad del Rosario, explains to Bloomberg Línea that in the framework of the re-establishment of this commercial flow at the border, “the de facto dollarization in Venezuela can indeed be a challenge since it would be preferred to carry out transactions with dollars against the peso”.

“Thus, in both routes, many prefer the dollar against the peso to avoid devaluation issues. It will also depend on the type of products, volumes to be traded, and the confidence generated in the market,” she said.

In addition, taking into account the history of trade in the past, he said that it would be necessary to promote a fair trade that does not encourage illegality and smuggling.

For her part, Ana Vera, chief economist at IN ON, said that the dollarization phenomenon in Venezuela “makes Colombian goods in pesos attractive to more Venezuelans, so in terms of the dollar, the currency has devalued significantly”.

“The biggest flow would be from Colombia to Venezuela so that both parties can benefit; on the one hand, Colombian producers will sell more, and on the other hand, Venezuelans would have access to cheaper products,” he said.

The reopening of the border between Táchira and Norte de Santander alone would mean a resurgence of that relationship, as well as trade and investment in both goods and services of approximately US$800 million to US$1.2 billion, according to the Colombian-Venezuelan Chamber of Commerce (CCV), whose former executive director was precisely Minister Germán Umaña.

With information from Bloomberg