(I swear from this basket to always keep alive the flame of XXIst. Century Socialism)
Not content with having two controlled exchange rates, the Venezuelan Government is getting ready to issue a decree or change the laws in such a way that it apparently creates…
a third controlled exchange rate…
Way to go Hugo, call me when there are 14, that is the world record. (Alan Garcia in Peru)
But seriously, the Government will apaprently issue a decree which says that banks and brokers will no longer be able to “intermediate” dollars (??) or dollar-denominated bonds* and those demanding dollars will have to go to a “closed-market” at the Venezuelan Central Bank, where one interprets or assumes the Government will sell foreign currency by an unknown mechanism or process which will be announced in the next few (days, weeks, months?).
Of course, since the Government wants this new rate to replace the swap rate and keep it down, it is certainly not going to be enough to satisfy everyone’s needs and you can guess what will happen…
A fourth rate, a true black rate will show up and it will be higher than the eightish rate at which the swap market closed today.
This is all guessing from an eight line decree which will be published today or tomorrow, but there are no more details.
To me the implications in this instant analysis are :
-A fourth black exchange rate
-Another mismanaged exchange rate that will not be enough and a new mechanism will be invented a couple of months later.
-Further shortages down the line as the swap rate provided an efficient mechanism to purchase foreign currency.
-Difficulties for the Government to offer bonds in local currency in the if investors have no “parallel” market to work with.
-A rise in the country’s bonds given that it shuts down the doors to any possible issuance in the near future to use as means of lowering the swap rate.
-More inflation.
These are my initials conclusions with little knowledge of what is behind the decree. Stay tuned.
*The change in the law as introduced this morning simply bans swaps with securities, thus shutting the “permuta” market.
The Devil's Excrement 