Tags: Venezuela | Chavez | currency | bolivar

Venezuela to Start Trading Dollars for First Time in 4 Years

Monday, 24 March 2014 11:44 AM

Venezuelans will begin trading U.S. dollars legally for the first time in four years today as the government attempts to reduce shortages of basic goods that have triggered nationwide protests.

Companies and individuals will bid to buy and sell greenbacks in cash and bonds in a new market regulated by the central bank, the financial institution said in a statement posted on the website today. The exchange rate will be determined by supply and demand, Economy Vice President Rafael Ramirez said when the system was announced last month.

“This is the first time in more than a decade that Venezuelan authorities have tried to fix a problem by reducing instead of increasing regulation,” Francisco Rodriguez, senior Andes economist at Bank of America Corp., said by telephone from New York on March 12.

Eleven years of currency controls have made dollars increasingly scarce, causing shortages of imported products ranging from diabetes drugs to laundry detergent. More than one in four basic goods was out of stock in Latin America’s fourth-largest economy in January, according to the central bank, which stopped publishing up-to-date scarcity data this month.

The shortages are fueling the world’s fastest inflation and have triggered more than a month of protests, with opposition parties and students staging daily marches. At least 31 people have died in the unrest.

Tourist Devaluation

In the new currency market, known as Sicad II, participants bid for dollar-denominated securities through banks and brokerages until 11:30 a.m. of every working day. Financial intermediaries forward bids to the central bank, which matches buyers with sellers and approves transactions.

The government also said that all incoming tourists can exchange their currency at the Sicad II rate. Tourists were previously meant to use the Sicad 1 rate, which last traded at 10.8 bolivars, or changed greenbacks on the black market for about 57 to the dollar.

Sicad II will cover seven to eight percent of Venezuela’s foreign currency needs, President Nicolas Maduro said in a televised national address March 21. More that 80 percent of the dollars will continue to be provided at the official exchange rate of 6.3 bolivars per greenback. On the black market at the Colombian border the dollar traded for 57.8 bolivars today, according to dolartoday.com.

No Ceiling

“There will be no pre-set bands or ceiling, with the market determining the price of dollars,” Ramirez told reporters March 11. Still, the central bank will intervene in trading to prevent “erratic” fluctuations in the exchange rate, according to market rules published in the Official Gazette the same day.

Former President Hugo Chavez in 2010 closed a currency swap system that permitted Venezuelans to obtain dollars legally, accusing traders in the market of fanning consumer prices and causing the bolivar to lose value. Inflation accelerated to 57.3 percent last month from 27.2 percent at the end of 2010.

The nine-fold difference between the official and black market exchange rate has made obtaining dollars through government systems the most profitable activity in the country, causing diversion of hard currency from useful imports to speculation, Barclays Plc economist Alejandro Grisanti said in a phone interview last month.

One in three dollars in the country is misused or stolen, Ramirez said in February. Venezuela earns about $120 billion from oil exports a year.

© Copyright 2021 Bloomberg News. All rights reserved.

Venezuelans will begin trading U.S. dollars legally for the first time in four years today as the government attempts to reduce shortages of basic goods that have triggered nationwide protests.
Monday, 24 March 2014 11:44 AM
Newsmax Media, Inc.
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved