Running on Empty Bolivia’s peg after the reserves ran out

Every fixed exchange rate is a promise backed by a balance sheet. Bolivia made its promise in November 2011, when the boliviano was set at 6.96 per US dollar. It has not moved since. What has moved is the balance sheet behind it.

#The reserves are the story

At the peak of the commodity boom, Bolivia held more than US$15 billion in international reserves, a cushion worth more than a year of imports. The central bank could sell dollars to anyone who wanted them, and the peg was never tested.World Bank figures for total reserves include gold. Bolivia has been selling and swapping part of its gold holdings since 2023, so the liquid share is smaller than the headline.

The decline was not a shock; it was a slope. Natural gas production fell, export receipts shrank, and the state kept importing fuel to sell at subsidised prices. Each year the central bank financed the gap by running down the stock. By 2023 the stock was small enough that dollars disappeared from banks, and a parallel market appeared almost overnight.

#Inflation is the exchange rate in disguise

For a decade Bolivian inflation was the envy of the region, often below 3%. That was the peg working: imported goods were priced at 6.96. Once importers had to source dollars in the parallel market, their costs reflected the parallel rate, not the official one.

6.96

BOB per USD, official rate since Nov 2011

−96%

Fall in total reserves, 2014 to 2025

19.5%

Inflation in 2025, from 0.7% in 2021

#What has to happen next

There are only three ways out of a ration: find more dollars, need fewer of them, or let the price move. Bolivia will probably need all three. External financing can buy time, cutting the fuel subsidy reduces the drain, and a unified exchange rate stops the parallel market from setting prices on its own.

The order matters for markets. A devaluation without a fiscal anchor is a one-off reset that inflation erodes within a year. A devaluation inside a funded programme is the beginning of a recovery, and that is when the sovereign curve becomes interesting.