Join the conversation:

Venezuela, the land of four currency exchange rates

Venezuela, the land of four currency exchange rates

Posted by PanamericanWorld on March 03, 2014

Amid foreign currency shortages, rampant scarcity, 56% inflation and social unrest on the streets, Venezuela’s government rolled out a new market-based currency exchange scheme to tackle the spiraling black market of US dollars in the country.

The system, known as SICAD 2, will allow supply and demand for dollars battle it out in a bond swap mechanism locally called “permuta” to set an additional official exchange rate. Private firms, public entities and individuals will be allowed to participate in this activity, which was previously reserved for the Central Bank.

SICAD 2 will add a third official rate to the 11-year-old currency control regime. About 82% of dollars have been so far channeled through the Bs 6.3 per US $ rate, which was recently constrained to food, health and education.

Since July 2013, weekly SICAD auctions have been determining a second rate, covering non-priority imports and tourist activities. This rate is variable and is currently at Bs 11.8 per US $. A fourth dollar price is determined in the black market and has jumped from Bs 20 per US $ to Bs 87 per US $ over the past twelve months, reaching 14 times the first official rate.

The recently launched SICAD 2 introduces more flexibility and raises hopes that distortions across markets may be corrected. The announcement of the mechanism produced a +4.0% rise in Venezuela’s global bonds and +3.0% jump of PDVSA’s bonds.

GLOBAL NEWS MATTERS

Facebook comments



Monthly newsletter featuring articles hand picked by our country managers from the best content across PanamericanWorld.



Monthly newsletter featuring articles hand picked by our country managers from the best content across the Caribbean Region on PanamericanWorld.

PANAMERICANWORLD COUNTRIES