Venezuela to Unveil Plan Allowing People to Trade Currency

(Bloomberg) -- The Venezuelan government stripped its national oil company of the power to control hard currency sales as part of an overhaul that will allow banks and individuals to buy and sell dollars at a “single, fluctuating rate.”

The new rules published around midnight Caracas time on Friday cover transaction procedures for banks, foreign oil explorers, individuals, international organizations and foreign government representatives.

Finance Minister Simon Zerpa foretold the new rules in an address on state television Friday. The system “will allow the Venezuelan population to buy and sell hard currency in small transactions and satisfy their personal needs,” he said.

While Zerpa insisted the rules will be “free and clear,” there is still doubt about their impact. “These rules might imply the dismantling of current foreign currency controls or at least a major easing,” Econometrica director Henkel Garcia said in a phone interview.

The government will create a new platform determining currency prices. There was no mention in the new rules of the existing thrice-weekly auction known as DICOM, nor of President Nicolas Maduro’s cryptocurrency, the petro.

The late President Hugo Chavez established currency controls in 2003 in a bid to stem capital flight. The efforts to regulate the sale of hard currency backfired as the state struggled to supply dollars amid crashing oil prices and rampant corruption, giving way to a thriving black market for greenbacks.

PDVSA and partners

The new regulations reinstate central bank controls over greenbacks from oil revenue and prohibit PDVSA from holding onto foreign currency for more than 72 hours. The company, formally known as Petroleos de Venezuela SA, oversees the nation’s only significant export and almost of its cash inflows.

PDVSA’s partners in oil ventures will also be obliged to sell foreign currency to the central bank, under the new rules. No additional details on that requirement were provided.

Re-jigged controls

Both Chavez and his successor Maduro have re-jigged currency controls multiple times but have so far stopped short of lifting them completely even as inflation spiraled and basic foods and medicines have gone scarce. Officially, dollars sell for around 61 bolivars. They currently fetch around 100 on the street.

Despite tight regulations and occasional raids by police, most prices in Venezuela are set by the black market as business owners and importers struggle to obtain dollars on official exchanges. While Maduro regularly takes to the airwaves to denounce “criminal” and “mafia” dollar rates, his administration has tacitly embraced free market prices this year.

Last month, the ruling socialists devalued the currency 95 percent and lopped five zeros off the bolivar as they tried to rein in hyperinflation. The government also repealed portions of laws governing foreign currency sales, enabling businesses and individuals to swap money at authorized trading houses.

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