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Venezuela begins to legally trade dollars on SICAD II

Venezuela begins to legally trade dollars on SICAD II

Posted by Dubraswka Aguilar on March 25, 2014

This Monday, Venezuelans began to legally trade dollars for the first time in four years, as the government tries to reduce shortages of basic goods.

Companies and individuals will bid for buying and selling greenbacks in cash and bonds into a new market regulated by the Central Bank, according to an official statement. The exchange rate will be determined by supply and demand as said Vice President of Finance, Rafael Ramirez, when the system was announced last month.

"This is the first time in over a decade that the Venezuelan authorities have tried to solve a problem by reducing, rather than increasing regulation," said by telephone Francisco Rodriguez, economist at Bank of America Corp for the Andes, on 12 March from New York.

Eleven years of exchange controls have made the dollar increasingly scarce, leading to shortages of imported products ranging from diabetes medication to laundry detergent.

More than one in four commodities were out of stock in the fourth largest economy in Latin America in last January, according to the Central Bank, which stopped publishing data of shortage.

The shortage is pushing the highest inflation in the world and has caused more than a month of protests, with the opposition parties and students organizing daily demonstrations. At least 31 people have died in the unrest.

Devaluation of Tourism

In the new currency market, known as Sicad II, participants bid for dollars through banks and brokerages, to 11:30 each business day. Financial intermediaries move bids to the central bank, which matches buyers and sellers and approves transactions.

The government also said that all arriving tourists may change their currency at the rate Sicad II. Tourists were previously intended to use the Sicad I which traded 10.8 bolivars per dollar, or change greenbacks on the black market.

Sicad II will cover seven to eight percent of the foreign exchange needs of Venezuela, explained President Nicolas Maduro in a speech televised nationally on March 21. More than 80 percent of the dollar will continue to be provided at the official exchange rate of 6.3 bolivars per dollar.

No limits

"There will be no pre-established bands or a limit on the market to determine the price of the dollar," Ramirez told reporters on March 11. However, the Central Bank will intervene in the system to avoid erratic fluctuations in the exchange rate, according to the rules of Sicad II published the same day.

The reference Bono Venezuela due 2007 raised 118 basis points to 74.83 U.S. cents at 10:48 am in New York, the biggest increase since January 15.

In 2010, former President Hugo Chavez closed a currency trading system that allowed Venezuelans to legally obtain dollars, accusing the market operators of feeding consumer prices and making the bolivars lose value. Inflation accelerated to 57.3 percent last month from 27.2 percent in late 2010.

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

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

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