New Foreign Exchange Regulations enacted by the Central Bank of Venezuela

The Central Bank and Minister of Finance of Venezuela enacted the Exchange Agreement #18, giving authority to the Central Bank to issue Resolution #100601. 

The new foreign exchange regulations reestablished, after more than 2 weeks of suspension of the once known as “USD permuta market”, an alternative for foreign exchange transactions outside of the tightly controlled CADIVI system. The new parallel fluctuating USD market (SITME) replaced the once known as “permuta market”, and essentially re-opened the alternative of purchasing and selling USD denominated securities but now only through the banks. Pricing of the bonds should fluctuate within a band or range established by the Central Bank, according to international debt prices. The Central Bank will actively and closely intervene in the market and there is an e-platform for the transactions, giving the Central Bank sufficient indication of supply and demand, as well as the parties participating in each transaction. In practice, the exchange control has moved from a dual to a multiple exchange system, with two controlled pegged rates applicable to certain imports and transactions authorized by CADIVI at 2,60 or 4,40 Bs.F per 1 USD, and a fluctuating rate system administered by the Central Bank through the banks, based on this E-bond” platform using international bond prices as a reference within a band for fluctuation fixed by the BCV. The Central Bank has issued regulations regarding the access to this market. Corporate acquisitions are limited to US$ 50,000 per day per company, and there is a US$ 300,000 per month per company or corporation. Individuals are subject to specific restrictions.

Foreign Exchange companies legally authorized will operate in the market solely for certain foreign currency exchange services such as travelers checks, small remittances, and other individual needs pursuant to the terms of the regulations.

The SITME system is managing total volumes ranging from US$ 30 million per day, with peaks in the range of US$ 50 million. The implicit exchange rate is averaging Bs.F 5,3 per USD and the band for prices of the USD denominated securities traded through SITME are published daily by the Central Bank at:

LatAm Consulting Update: Venezuela’s New Foreign Exchange Law includes “Bond Swaps” as controlled transactions

The National Assembly approved the reform to the Foreign Exchange Control Laws today (5/13/2010).

As indicated in our previous alert, the “bond swap market” (also known as “US$ Permuta Market”) has been defined as a “foreign exchange transaction”. By placing the “US$ Permuta Market” under the Scope of the Law, it will be illegal to trade in securities denominated in US$ outside of the institutional trade to be organized, regulated and intervened by the Ministry of Finance and the Central Bank of Venezuela. It is expected that a “regulatory framework” for the trade with securities denominated in USD will be issued shortly by the Central Bank.

In a press conference yesterday (5/18/2010), the head of the Central Bank and the Minister of Economic Planing addressed the nation indicating that the implementing regulations will be issued within the next week, indicating that there will be a parallel market or a market with USD denominated securities organized by the Central Bank, under a platform that will guarantee no speculative pricing and under the intervention and control of the authorities, permitting the value of the securities, and thus, the rate of exchange of the USD to fluctuate within a band or range. They further announced that “Stock Brokerage  Companies” (Casas de Bolsa y Sociedades de Corretaje) will be banned from participating in this market, indicating that investigations will follow to determine their potential responsibility for illegal speculation at the now banned “Permuta Market”.

We will issue updates when the authorities and the Central Bank take the expected regulatory measures.