As oil revenues tumble, Venezuela is launching a new foreign exchange plan in the hopes of bringing more foreign currency to a country suffering from basic shortages.
Venezuela takes steps to inject more U.S. dollars into their economyAs oil revenues tumble, Venezuela is launching a new foreign exchange platform in hopes of bringing more foreign currency to a country suffering from basic shortages. CCTV America’s Martin Markovits reported from Caracas.
Venezuela took a small step towards liberalizing a 12-year-old currency control system implemented in the country. The country’s central bank announced a new currency exchange platform that will allow foreign currency to be traded based on supply and demand.
“As soon as the exchange program is published this program will begin. It is to be a completely free system, which will include supply and demand for exchange rates. The market itself will set the rate. The market will determine what the exchange rate will be,” Rodolfo Marco, Venezuela’s finance minister said.
Long lines, shortages of basic goods like potatoes and the worst inflation in all of the Americas has forced the socialist government to rethink its state-controlled model implemented by deceased President Hugo Chavez.
Venezuela’s complex currency controls
Venezuela provides its economy with U.S. dollars through a complicated three-tier exchange system. First, in country, the exchange is 1 U.S. dollar for every 6.3 bolivars if you intend to import vital goods like food and medicine. For other imports one moves to the two other tiers known as ‘Sicad’ one, which is currently around 12 bolivars to the dollar. ‘Sicad’ two is as close to a free market economic system that the current Venezuelan government will allow and is 52 bolivars to the dollar. On the black market in Venezuela the unofficial exchange rate can reach 190 bolivars for every 1 U.S. dollar.
The new plan which is being called the ‘Marginal Currency System’ will replace ‘Sicad’ two and while it is expected to stay below the heavy black market rate, the new currency exchange is still expected to more than double in comparison to the lowest existing rate.
While most free-market economists applaud this new easing, in order to really solve the country’s economic problems some hard liners have long recommended that Venezuela eliminate all price controls.
“They are afraid that if they unify the currency, this could cause the inflation rate to reach 100 percent which is something that the government really fears. So, instead, they opt for this three-tier exchange system, which just keeps distorting the economic problems in Venezuela,” Economist Luis Oliveros said.
This new plan aims to ease, but not eliminate state controls.
CCTV America’s Martin Markovits compiled information in Caracas, Venezuela for this report.