Venezuela’s New Forex System Launches

Venezuela was set Thursday to hold its first currency auction under its newly reformed foreign exchange system, which the government says will be more transparent and effective than its predecessors.

By Ryan Mallett-Outtrim

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(El Nacional)
(El Nacional)
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Puebla, Mexico, May 25, 2017 (venezuelanalysis.com) – Venezuela was set Thursday to hold its first currency auction under its newly reformed foreign exchange system, which the government says will be more transparent and effective than its predecessors.

At 0800 Caracas time, the newly created online exchange platform issued its first call to bidders, allowing Venezuelan citizens and businesses to trade their bolivares for dollars, vice minister of the economy Ramon Lobo has announced.

“We will be opening the first auction of this new system of foreign exchange aimed at – as a fundamental objective – transparency and human non-intervention in its administration process and in terms of the distribution of currencies,” he said.

Unveiled on Tuesday by the government after being initially announced at the end of March, the new auction platform is a reformed version of Dicom. Dicom itself was created in March 2016, with the government stating it would offer currency traders a free floating exchange system. The system was aimed at producing foreign currency for non priority imports and travel. At the time, the government said Dicom was intended to compliment the Dipro platform, which offered foreign currency at a fixed exchange rate.

It’s unclear how successful the original Dicom was, though the government has argued the new system will be more effective.

“We will optimise [Dicom]," Lobo said on Tuesday.

The results of the first auction won’t be known until next Tuesday, although government officials are optimistic. In a statement Thursday, Lobo explained the new Dicom will sell foreign currency at a rate automatically determined by algorithms “without intervention of the central bank nor of exchange operators”.

However, this rate will be restricted by bands set by the central bank (BCV). He continued by explaining the new auctions will take place in two rounds. Each standard round of bidding will be followed by what he called a “contingency auction”. Lobo said this second auction will balance any discrepancy between supply and demand that may emerge in the first round of bidding, though the government is yet to release further details of how it will work in practice.

The new Dicom platform is the fifth major foreign currency exchange reform undertaken since President Nicolas Maduro took office in 2013. Previous exchange systems have been marred by complaints of a lack of foreign currency and opaque bureaucracy. 

Previous rounds of reforms have likewise failed to close the gap between Venezuela’s official and unofficial exchange rates. On the black market, the bolivar is currently trading at just under BsF6000 to the dollar, according to the opposition-aligned tracking website, dolartoday. Comparably, the strongest official exchange rate, Dipro, is trading at BsF10 to the dollar. The government hasn’t publicly announced the Dicom band rates.