Why Some Might Consider Investing in Venezuela’s Currency

As of now, the exchange rate is approximately 1 VES = 0.00576 USD (i.e., just under six‐hundredths of a U.S. dollar) 

Equivalently, 1 USD ≈ 173.5 VES under the mid-market rate. 

Due to Venezuela’s economic volatility, please note that different exchange venues (official, black market, peer-to-peer) may quote significantly different rates.

On the face of it, this sounds counterintuitive — Venezuela’s bolívar has long been plagued by hyperinflation, capital controls, devaluations, and economic instability. (Wikipedia) Still, if the Venezuelan government were to change course dramatically — emulate aspects of Panama’s dollarization or currency-pegging strategy — there could be upside opportunities:

1. Revaluation potential
   Suppose Venezuela were to commit to a credible peg or partial dollarization (or adopt a dual-currency regime). In that case, the bolívar (or any successor or parallel unit) might appreciate sharply relative to its crippled current form. Early holders could thus benefit from conversion gains.

2. Catching a regime change/stabilization “moment”
   Currency investments often pay off when confidence returns. If political and monetary reforms restore credibility, foreign and domestic capital might flood in, lifting the relative value of the local currency or instruments tied to it.

3. Interest and yield arbitrage
   In a high-risk environment, yield premiums on government or quasi-governmental bonds can be substantial. If reforms lower inflation and default risk, those yields become highly attractive relative to safer currencies.

4. First-mover advantage
   If few investors bet on a turnaround, those who do might capture outsized gains. Being early in accepting and holding the reformed unit could yield significant capital appreciation.

5. Hedging local exposure
   For Venezuelan residents or businesses, holding currency instruments of the new regime could serve as both a hedge and a bridge into the stabilized monetary system.

Of course, all of this hinges on a credible commitment to reform, strong institutions, and external support (such as foreign currency reserves, investor confidence, and openness). Without these, the risk remains enormous.

What happened in Panama after Noriega was captured

Panama’s historical experience provides a concrete example of how currency and banking confidence can shift following political upheaval. Here’s a concise summary:

• Context: In the late 1980s, General Manuel Noriega effectively controlled Panama, ruling through the Panamanian Defense Forces. In December 1989, the U.S. invaded Panama (Operation Just Cause) to oust Noriega, who surrendered in early January 1990.)

• Currency regime: Importantly, Panama had long used a dual currency regime — the Panamanian balboa (at parity) and the U.S. dollar. In practice, Panama had effectively dollarized: U.S. dollars circulated as the main paper currency, while balboa coins existed (often mirroring U.S. coins). Panama never had a fully independent floating currency. 

• Banking recovery: After Noriega’s ouster, bank deposits rebounded strongly. By November 1991, deposits in the 107 local and international banks in Panama had increased by about USD 4.2 billion compared to the situation before the invasion. (UPI)

• Confidence restoration: The capture of Noriega and return to democratic governance boosted political credibility, rule of law, and institutional stability, which in turn restored confidence in the financial sector and the currency environment.

Thus, Panama’s experience suggests that political credibility and institutional integrity can cause a swift resurgence in banking and capital flows, which is the kind of environment in which currency-based investments could pay off.

Caveats and risks to keep in mind

• Credibility is everything: Without convincing reforms, pegging or currency change may fail.

• Inflation and currency risk: Venezuela’s recent history includes hyperinflation, massive devaluations, and multiple redenominations. (Wikipedia)

• Capital controls and legal risk: Even if reforms occur, capital controls, restrictions on convertibility, or retroactive confiscations are possible.

• External dependencies: A successful peg or dollarization generally requires strong foreign reserves and external backing (e.g., by international financial institutions).

• Timing risk: Being too early or too late can lead to significant losses or missed opportunities.