Thursday, October 21, 2021

Venezuela scraps exchange controls

Caracas, May 7 (EFE).- The Central Bank of Venezuela (BCV) said Tuesday that individuals and firms will be allowed to freely trade foreign currency, marking the end of exchange controls put in place in 2003.

The plan, which is posted on the BCV Web site, authorizes banks to facilitate currency trades and to engage “in interbank transactions, purchase and sale of foreign currency on the part of natural and legal persons.”

To be eligible to trade, companies and individuals “must have completed satisfactorily the processes of due diligence in regard to the respective exchange operator” and must be established clients of Venezuelan banks, according to the statement.

The BCV did not set a date for the new system to take effect.
Venezuela imposed exchange controls in 2003 amid an economic crisis stemming from a general strike organized by opponents of then-President Hugo Chavez (1954-2013).

The existence of a tolerated black market in currency trading, false invoicing by importers and – in recent years – hyperinflation were among the factors that worked to undermine the exchange-control regime.

The BCV make frequent revisions to the system, most recently in 2016, with the creation of a dual exchange rate aimed at stabilizing the economy as oil-rich Venezuela struggled to cope with plummeting revenues due to the sharp drop in the global price of crude.

Reacting to Tuesday’s announcement, economist Asdrubal Oliveros of the firma Ecoanalitica said that the elimination of exchange controls could end up having little effect given “the regulatory framework, hyperinflation and the depression of the economy.”

Another negative element, he said in a statement, is the limitation on Venezuelan banks’ ability to conduct international business due to the harsh sanctions imposed on the country by the United States.

The combination of the sanctions and the ongoing economic crisis “dilute the potential benefits this measure can bring,” Oliveros said.
Once the new policy is in effect, financial institutions will have to submit daily reports to the BCV on the volume of currency trades and the median exchange rate.

The BCV will post the prevailing exchange rate every day on its Web site.

The text did not specify the starting exchange rate and the BCV had no immediate response to a request by EFE for additional information.