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:


Background. For several years the Venezuelan exchange control system excluded from its scope all transactions with “securities” allowing a very dynamic market of “USD denominated Bonds” to be swapped for Bs.F denominated bonds, thereafter sold for USD in the international secondary markets (know as the USD “permuta market”).

The USD “permuta market” offered a fluctuating alternative to access USD for those not eligible or not granted access to the pegged control rates through the CADIVI-Central Bank controlled system. After the devaluation and dual exchange system adopted early this year, President Chavez himself declared the war against the “price increases and speculative movements in the “USD permuta market”. As the crisis has evolved, and the CADIVI-Central Bank system has proven to be more inefficent, the market had shifted drastically to the flexible USD “permuta market” as a source to fund their foreign exchange needs. The increased demand has driven the implcit rate of exchange in the “permuta market” to tirpple and double the official pegged rates provided by the “dual controlled system” administered by the government.

Initially the government attempted to intervene this “permuta market” by influencing pricing in the bonds traded or swapped with the issuance of “Bonos Cambiarios” resulting in a lower implicit rate of exchange for the USD, and in an effort to provide more liquidity to he market. Lately, the gap kept widening showing “Bonos Cambiarios” placed at an implicit rate of BsF. 5 to 5.50 per USD, yet the “permuta market” kept pushing upwards the implicit value of the USD to almost BsF. 8 per USD. During the last quarter, the lack of efficiency of CADIVI to liquidate controlled USD petitions for imports and other essentials, has shifted most of the economy to this “permuta market” with a distortion affecting inflation. In an effort to control prices for essential goods and services, the government launched an aggressive consumer protection initiative” with an outcome including “expropriations”. The inflationary trend has not stopped, as well as the implicit devaluation of the USD in the permuta market bonds pricing. Scarcity of certain essential dietary items is resulting from the current situation, thus, activating a greater pressure over prices.

During the last few days the government has intervened several stock brokers and forex traders.

The Proposed Exchange Control Legal Reform. Today the National Assembly Finance Committee approved, for urgent discussion, a reform to the exchange control laws with the following proposed changes:

(i) To include “securities” in the scope of the law, thus treating “permutas” as a foreign exchange transactions covered by the exchange controls.
(ii) To include specific authority for the Central Bank to organize, intervene, regulate and control all forms of “foreign exchange transactions” including the transactions with USD denominated securities.

At the time of this LatAm Consulting Alert it is known that the legal reform proposed by the Finance Committee will come to the floor for discussion tomorrow. It is also known that cabinet members and Central Bank authorities are divided in regards to the next steps. Some voices claim the USD pemuta market should be made illegal, others, afraid of the practical implications, are promoting a “very regulated and institutionally organized and intervened market with the Central Bank as the clearing house for all transactions involving USD denominated securities”. The final outcome will depend on the regulations to be issued under the new law. Meanwhile uncertainty reigns.

Actions. We are recommending to monitor events closely and commence a complete review of repatriation strategies, debt service, importation and any other transactions involving foreign exchange. Also, we are recommending to act prudently with regards to pricing of inventories.

We will follow the developments closely and issue updated Alerts.