Bolivia Ends 15-Year Currency Peg Given Growing Costs of Fixed FX Regime

  • On Friday, June 26, the Banco Central de Bolivia (BCB) announced that it was transitioning away from its 15-year-long currency peg towards a more liberalised foreign exchange (FX) rate framework. The BCB approved new FX regulations that will determine the exchange rate based on daily transactions carried out by financial institutions, with the new rate published by 8 p.m. local time each day and effective the following day.
  • While the new framework liberalises the FX and allows for market forces to play a greater role, it should be considered more as a managed float system rather than a fully free-floating system. The new rules state that financial entities cannot charge more than 10 Bolivian cents above the daily official exchange rate when selling dollars. The volume-weighted average exchange rate for June 29, 2026 – the first day the new framework was in effect – sat at Bob9.76/USD.
  • Reform to the exchange rate policy was a key commitment that President Rodrigo Paz had campaigned on, as the antiquated framework was increasingly distortionary and unsustainable, as evidenced by the emergence of a large parallel market.
  • Paz has made incremental progress in moving away from this system since coming to office in November 2025. On December 1, 2025, the BCB started officially publishing the prevailing, black market exchange rate charged by financial intermediaries as the ‘referential value’, which presented a shift from the previous government that did not even acknowledge the prevalence of a parallel rate.
  • The overvalued FX peg of Bob6.96/USD posed several macroeconomic challenges, primarily for external account stability, as it was not only hurting export competitiveness but also contributed to the depletion of the BCB’s international reserves as it sold hard currency to defend the peg, which ultimately led to import compression flows given a lack of USD liquidity.
  • Trinidad and Tobago (T&T) offers a contrasting example of the challenges associated with maintaining a heavily managed exchange rate regime. The country has retained its de facto peg to the US dollar at around TTD6.77/USD despite persistent foreign exchange shortages, an overvalued currency, and repeated calls for greater exchange rate flexibility. The Central Bank of Trinidad and Tobago (CBTT) has instead relied on sizeable FX interventions to defend the currency, contributing to chronic shortages of US dollars and the emergence of allocation constraints across the economy.
  • Rather than adjusting the exchange rate, policymakers have prioritised administrative and monetary measures to address FX pressures. Newly appointed CBTT Governor Larry Howai has indicated that higher interest rates[1], tighter FX management, credit controls, and measures to encourage foreign exchange generation will be used to ease shortages, while stressing that any change to the exchange rate regime remains a political decision.
  • This highlights the trade-offs of maintaining an overvalued peg, with T&T opting to preserve exchange rate stability despite the growing distortions in the FX market and the challenges the FX shortage is posing to businesses, consumers and the overall smooth functioning of the economy, in contrast to Bolivia's recent move towards a managed float.

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1The CBTT has held rates even since this announcement in late 2025

(Sources: BMI, A Fitch Solutions Company & NCBCM Research)