“Rules” for the new Foreign Exchange System at the Venezuelan Central Bank, or are they?

June 7, 2010

Today’s headlines said something like: “Rules for new foreign exchange market published”. Everyone gets excited, as El Nacional says the Minister of Finance wants the new exchange rate capped at Bs. 6 per US$. However, no such rules were published.

What was published was Foreign Exchange Agreement #18 (Yes, 18 times the relationship between the Central Bank and the Government has been changed on foreign exchange markets) and the regulations, but you will find little telling you how to do it, what you can do, when you can do it or where you can do it, which is what people want to know.

But rules? Nothing of the sort, some general principles that will guide the new exchange market mechanism, but if you wanted to read them to see how you go about getting cheap dollars (Venezuela’s most important export!), you are out of luck.

Because the “rules” defined by the 18th. Foreign Exchange agreement and the associated regulations are:

–Only banks, savings banks and exchange houses will be able to participate in the market to sell and buy bonds via the Venezuelan Central Bank.

-They will charge a commission which will have to be published.

-Exchange houses will only be able to deal with cash of Colombian Pesos or Brazilian Reals.

-Banks can send money transfers

-Banks will have to provide all information requested from them by the Central Bank.

-You can only trade bonds issued by the Republic and related entities via the Central Bank and only banks and similar financial institutions can do it (You knew that!)

-The Central Bank will say which bonds can be used.

-If you don’t comply with any of the above you will be punished and you can be inspected by the Central Bank, as often, as necessary and as in detail as the Central Bank desires.

There you have it. You have read my post, but learned absolutely nothing about how to to get a dollar out of the Central Bank. You know you will have to go to a bank, that’s about it!

Thus, the market that was going to start last week. (Chavez said it will be hours or days before it starts, well it maybe a group of days, called a week). My bet is, this will not start this week either, so that Venezuela would have saved one month of imports, which maybe Minister Giordani believes means that the money will be saved and people can go hungry, diaper-less, cellphone-less, or whatever for a full month without any significant impact.

Jeez, I wish , I would charge a dollar for each person that reads a post…I would get more foreign currency that way that I am likely to get out of the new system…even if it is at Bs. 6 per $, ta’ barato dame dos (It’s cheap, gimme two*)

*Famous phrase from the 70’s when Venezuelans would go to Aruba, Miami and Curacao and when told the price would answer that way)

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15 Responses to ““Rules” for the new Foreign Exchange System at the Venezuelan Central Bank, or are they?”

  1. concerned Says:

    The regrettable common saying here is “Why do it the easy way when we can do it the hard way”.

    It seems that we have lost the ability to recognize what is good, bad, or acceptable. It is to the point where we are not mad as hell that we were without electricity for six hours yesterday, but happy that we had electricity for the other eighteen. We are not mad anymore that we are without water service for three quarters of the day, but glad that they allow us to have water at the breakfast, lunch and dinner times. We are not mad anymore that we had to go to four grocery stores to find part of our shopping list, but excited, as if we had found gold that we scored some milk and cooking oil at a small chinese market. I don’t import parts or goods so I can’t comment on that other than I am sure it is equally fucked up.

    We have become immune to what is wrong with this country. You only have to travel 50 miles in any direction from the Venezuelan border to know that Venezuela is unique in that it is falling behind in any aspect while the other neighboring countries are moving forward. XX1st century socialism???Revolution??? Even the cubans are going back home.

    If Chavez would have tried any of his latest antics 8 years ago, he would have been tarred and feathered. He has been successful, so far, because we have become immune to the venom.

  2. Roy Says:

    Re: Kevin

    Sorry, Coach. They were too big for me.

    Anyone else care to try and explain why importing car parts for the simple purpose of changing money from one currency to another is not efficient and should not be considered “business as normal”?

    How about: It is like driving from Caracas to Maracaibo but instead of going directly west toward Valencia and Barquisimeto, you have to get there via Santiago de Chile while taking a short cut through the Amazon Jungle on the way.

  3. Kevin Says:

    Roy,

    You are not changing money. You are importing car parts that you bought with your own dollars and selling them for bolivars.

  4. Roy Says:

    Kevin,

    There IS a law against changing money outside of the official systems. It is not necessarily enforced for small amounts. However, I can assure that changing dollars for Bs. (at the black market rate) at the airport in Caracas, while common, is done covertly. Therefore, it is against the law.

    Look, I was being overly dramatic to make a point. We are all going to do what we have to do. But, I don’t have to like it.

  5. Kevin Says:

    Roy,

    I’m don’t know much about Venezuelan law, but I don’t think that there is any law against it. You are importing things and selling to businesses who can’t get a better deal elsewhere. But if I’m wrong about Venezuelan law, I hope someone will correct me. But certainly, there is a market need for things that can be bought in dollars.

  6. karl Says:

    I have a few concerns that seems to be forgotten in this whole Cadivi 3.0 mess. If banks have to sell their bonds below market price at today’s price, they must adjust their books accordingly. How where those bonds reflected on their balance sheets? How would that affect their reserves? Are they going to be forced to raise capital to remain within Central bank capital regulations?
    No one seems to know today but one thing is for sure, other than the obvious losers in this scheme (the bank’s shareholders), it increases risk for all persons that hold accounts on those banks. I guess will know soon

  7. Roy Says:

    Kevin,

    It makes my head spin thinking about it. Honest business is simple. One openly trades value for value. This is complicated and unsavory.

    You know, because I am a resident, I am entitled to buy dollars cheaply through CADIBI. Of course, that is only in theory at this point, because my application would be denied for one reason or another and the hassle and paperwork just isn’t worth it. However, even when it was still practical, I never did it, because I didn’t want to participate in cheating the system. Not being a Venezuelan citizen, I just didn’t feel I had a right to get something for nothing from Venezuela.

    Some people might say that makes me a dupe or an idiot, but I sleep well at night and there is no price on that. I hate that we are being forced into engaging in such quasi-legal maneuvers that can always be interpreted by someone as dishonest or criminal.

    The real ugliness of communism/socialism is that it forces otherwise honorable men to become dishonest. Once a man is guilty and complicit he can then be manipulated. The one thing such systems fear above all is a guiltless man.

  8. Kevin Says:

    Roy,

    You may just have become an wholesaler/importer.

    If this thing is shaping up to be a permanent system of random, but persistent, import shortages, factories will be going down for lack of critical spare parts. If you run and auto repair shop, you really have problems.

    You need to partner with them. Let’s say that you need to bring in $4,000/month. You have a customer who needs Chevy parts from a wholesaler somewhere in the Caribbean. He give you a list of $4,000 worth of parts that he needs air-freighted in this month. You order and pay for the parts and charge him the “market price” of 40,000 Bs. There is no illegal transfer of money on either end. You used your own legitimate dollars to buy the ordered auto parts and then sold them for an appropriate mark-up in Bs. If the shortages get really bad, you may be surprised how big the “wholesale importer’s mark-up” becomes. This works as long as they only restrict access to foreign exchange rather than license imports.

  9. concerned Says:

    It is one thing to freeze an “official” rate of exchange as long as you have the reserves to subsidize this artificial rate, and that it serves a purpose…temporary relief from inflation or just plain political purposes. But to freeze an artificial, “official” rate when there is not sufficient reserves to subsidize it, is ludicrous.

    The money will dry up, the small businesses next, and then who knows how low the economy can sink (except Cuba)? It doesn’t matter how many B’s they print…they are worthless for imports and travel outside the borders. It wasn’t long ago that he cut three zeros from the Bolivar at his daughter’s whim. Most recently, a 100% devaluation. What is next???

    He is running out of reserves to mortgage and he is buying planes with his Yen loan instead of something, say a little more practical. Venezuela will be paying for many years for what this loon has mortgaged to stay in power today.

  10. Andres F Says:

    Nelson Merentes is supposed to explain the new rules today:
    http://www.reporte360.com/detalle.php?id=38084&c=3

  11. A_Antonio Says:

    MO, When you have real picture about how tranfer money legally from Venezuela let now, write a post or comment.

  12. island canuck Says:

    Roy:

    I do believe that up to $10,000 transactions are not “illegal” or at least will not be prosecuted. If I am wrong about this someone please correct me.

    Also the “official” rate for this kind of transaction is 4,3 so your onions may be a little less expensive 🙂

    The bigger problem for us here in Margarita is going to be the massive layoffs when the hundreds of stores that depend on imports will have to let people go if there is no easy way to get hard currency for imports.

    Last week I walked through Sambil & figure that more than 80% of the stores there depend on imports. This would be the same on the 4 de Mayo, La Vela, Rattan, Juan Griego or any of the many shopping areas here.

    August is just 7 weeks away, inventories are dwindling &, at the moment, there doesn’t seem to be an easy solution.

  13. Roy Says:

    While the plight of Venezuelan businesses that are simply trying to keep operating instead of closing their doors and letting their employees go, is in focus, there is also the other side of the coin. As an expat here in Venezuela, I rely on making a moderate transfer every month or so for my spending needs. The parallel market provided me with a fairly efficient manner to meet my need for Bolivars for my local living expenses. Granted, a freely exchangeable currency, in which I could negotiate direct transfers through my bank would be even more efficient, but I had an experienced and trusted enterprise that provided the service, albeit no longer.

    Now, I and all of the other expats in Venezuela who live off of foreign savings and income will, of shear necessity, become criminals, making our trades in whispers in back rooms and using coded language in telephone calls and e-mails, lest we be accused of… What? I know it is now illegal, but what is the crime called? Speculating? Illegal trading? How can trading legal tender be “illegal”?

    The really sad part of it is that I will probably actually benefit from it, when the demand and “speculation” for black market dollars drives the real value of the Bolivar down even farther than the economics would warrant.

    Of course, the Chavistas would tell me that I should just change at the legal official rate of 2.3 Bs. per Dollar. Right!!! Estuve nacido, pero no ayer. That would put the current price of an onion at just under $10 per kilo!

  14. Kevin Says:

    As a general rule, how long between payment for imports and the ultimate retail sale?

    The parallel market was suspended 3 weeks ago. I would assume that Venezuelan importers aren’t going to get much in the way of suppliers’ credits under these circumstances. It sounds like Venezuela could go on for another week or two without funds for importers. When does this break in the pipeline hit the store shelves?

    If it’s 90 days, that is mid August until at least mid-September. The election may be even more exiting than you think.

  15. karl Says:

    So true, MO.


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