Venezuelan government rules out dismantling swap market

[ChangoLoa]

Source: El Universal

The Venezuelan government does not intend to dismantle the swap market of securities that set the price of the parallel dollar, a senior government official told Reuters on Tuesday. The source added that Venezuela is discussing a plan to ensure that Venezuelan bolivar exchange rate to the US dollar remains "rational."

In the last few weeks, the unofficial exchange rate has increased well above the regulated exchange rates of VEB 4.3 and 2.6 per US dollar, due to growing demand for foreign exchange and low supply of US dollars, amid stringent exchange controls in force since 2003.

"We are working on a methodology that will help us to keep the runaway exchange rate in the parallel market at a rational level, but there are no plans at all to eliminate the swap market," said the source, who spoke under condition of anonymity. One of options being examined is the creation of a price band linked to the price of sovereign bonds.

Read more: http://english.eluniversal.com/2010/05/11/en_eco_art_venezuelan-governmen_11A3874943.shtml

[RedCloud]

1. Where is the contradictory wing nut outrage?

Are they just pseudo socialists?

[protocol rv]

2. Well, if I were in charge....

I would dismantle the exchange control system they use, and revert to a single rate. The use of the parallel market plus to legal rates means there are three rates now. And this lends itself to a lot of buraucratic snafus, slow downs in commerce, and corruption. But I don't suppose people worry about those details. :-)

[ChangoLoa]

5. We need to subsidize some imports... food and capital goods.

Your solution could turn out to be self-defeating. Let me try to understand: would you let the currency float?

[ChangoLoa]

3. Unfortunately the govt needs the parallel market to get more bolivares for its dollars

Since oil went down, they are trying hard to figure out how to avoid cutting the public spending. The problem is the devaluation/inflation couple.

[RainMickey]

4. The article is from last Tuesday. Didn't the gov crack down on "speculation" on Friday?

[ChangoLoa]

6. Actually, they're heading toward the creation of a group of authorized parallel market changers.

Many announcements.

[protocol rv]

8. If the authoraized parallel market changers change, then it's ok

If the authorized parallel market changes don't change the money, then it's going to be interesting. I bet you'll be able to purchase a house in La Lagunita for $100.000 US. :-)

[protocol rv]

7. All was quiet in the Eastern Front

I didn't hear much. Everybody is waiting for the new law to become effective, and then they will apply for their permits to get US dollars, see what happens. The mere change in the law and the regulations means the system is already starting to jam up, so my guess is the black market is functioning now at a deeper level, rather than the more parallel market level.

There's a lot going on behind the scenes we don't hear about, I suppose. But all these atempts to control the currency usually end up in failure, unless they exercise a lot of care to allow the transactions to move fast. The parallel market emerged because the existing two track market wasn't working, so I imagine if they gum this one up, a fourth market level will emerge. It's a little bit like they use in Myanmar, and Myanmar isn't known for its wealthy citizens.

[RainMickey]

9. What's missing now are the websites that give buyers/sellers a starting point for negotiation.

Last I saw was a range from 7.5 to 8.2 Bs/$

[protocol rv]

10. Mr Rain Mickey, I regret to tell you but you just broke the law

Here in Venezuela, it's illegal to quote the exchange rate in the parallel market. Please send us your location so we can arrest you.

[RainMickey]

11. You show me yours and I'll show you mine. :)