The policy change, announced by the government on Friday through an official decree, effectively devalues the country's currency and is expected to reshape Bolivia's financial landscape as it pursues international financial support and works to rebuild investor confidence.
Under the new framework, Bolivia's central bank will oversee the exchange-rate transition, allowing the value of the boliviano to adjust more freely in response to market conditions.
According to the Economy Ministry, the reform is designed to improve the country's economic resilience while addressing persistent imbalances in the foreign exchange market.
The ministry said the new policy aims to "strengthen macroeconomic stability, preserve external competitiveness and contribute to the balance of payments equilibrium."
The exchange-rate reform forms part of broader efforts by the Bolivian government to normalise currency markets and support ongoing negotiations with the International Monetary Fund (IMF) for a financing programme estimated at between $2.5 billion and $3 billion.
Authorities hope the measures will help ease severe dollar shortages that have disrupted businesses, constrained imports and undermined confidence in the country's financial system.
Bolivia had maintained one of Latin America's longest-standing fixed exchange-rate regimes since 2011, keeping the official exchange rate at 6.86 bolivianos per U.S. dollar for purchases and 6.96 bolivianos for sales.
However, declining foreign exchange reserves and increasing scarcity of dollars gradually weakened the effectiveness of the peg, leading to the emergence of a thriving parallel market where the U.S. dollar at times traded at nearly 20 bolivianos, far above the official rate.
More recently, commercial and financial transactions had increasingly relied on a reference exchange rate of approximately 9.90 bolivianos per dollar, reflecting the growing disconnect between the official and market values of the currency.
Following the government's announcement, Bolivia's central bank updated its official exchange rate to 9.73 bolivianos per U.S. dollar, effective Monday.
The adjustment represents an estimated 30 per cent depreciation of the boliviano compared with the previous official buying rate, marking a significant devaluation aimed at bringing official rates closer to prevailing market conditions.
Although the International Monetary Fund did not immediately comment on the government's decision, the institution had recommended the removal of the currency peg in its annual assessment of Bolivia's economy last year.
Economists believe the policy shift could strengthen Bolivia's case for securing IMF financial assistance, which is expected to support efforts to stabilise public finances and rebuild depleted foreign reserves.
Despite welcoming the reform, economist Gonzalo Chavez cautioned that exchange-rate flexibility alone would not resolve Bolivia's economic challenges.
"Once you have this, the important thing is to continue getting dollars, to have international reserves in the central bank," he said during an interview with local radio.
The government's economic strategy has nevertheless generated strong political opposition.
Labour organisations have staged nationwide protests since May, blocking major highways in opposition to President Rodrigo Paz's administration and expressing concern over the country's negotiations with the IMF.
One of the leading labour organisations, the Bolivian Workers' Central, has demanded that the government abandon plans to secure IMF financing as a condition for ending the demonstrations.
Union leaders argue that an IMF-backed programme could result in austerity measures, including spending cuts and economic reforms that may worsen living conditions for ordinary citizens.
The government, however, maintains that external financial support is essential to rebuilding international reserves, restoring fiscal stability and ensuring a smooth transition to the new exchange-rate regime.
The prolonged protests have significantly disrupted economic activity, with road blockades affecting transportation, trade and supply chains across the country.
In response to the unrest, President Rodrigo Paz declared a state of emergency last week, granting security agencies additional powers to remove roadblocks that had paralysed large sections of the economy for nearly two months.
The exchange-rate reform now represents a critical test of the government's broader economic recovery strategy as Bolivia seeks to stabilise its currency, restore confidence among investors and businesses, and navigate one of the most challenging periods in its recent economic history.