A new foreign exchange platform for Venezuela to be created as part of the three-tiered currency control system will have a free-floating exchange rate, local media reported on Friday, citing the country's planning minister. President Nicolas Maduro this week announced plans to change 12-year-old currency controls by turning the government-run auction system known as Sicad II - which provides the weakest of the three rates - into a new platform operated by brokerages.
"It will be an open market and the vision is ... that there will be a free floating (exchange rate) through public and private brokerages," said Planning Minister Ricardo Menendez in comments cited by local newspaper El Mundo Economia y Negocios. Economists say this system will be similar to the parallel currency market known as "permuta," based on bond swaps, that was outlawed in 2010. Complete details of the new exchange mechanisms, including the exchange rate that will be used by the second of the three tiers, are to be released in the coming days.
Late socialist leader Hugo Chavez created the exchange controls in 2003 amid an opposition-led oil industry shutdown, and maintained them even after taking back control of the oilfields to ensure state control over oil revenue. Maduro has insisted on maintaining the controls despite acknowledgements by state officials that the system has suffered from widespread corruption. Officials in 2014 launched the Sicad II auction system with assurances that its exchange rate would be based on supply and demand.
Participants said in practice the exchange rate ended up being capped at around 50 bolivars per dollar. The strongest official exchange rate is 6.3 bolivars per dollar, but the greenbacks on the black market sell for 181.7 bolivars, according to widely consulted website dolartoday.com. The Opec member's economy shrank 2.8 percent in 2014 while inflation topped 64 percent as the Opec nation struggled to cope with plummeting oil prices and nagging product shortages driven in part by the exchange controls.