Venezuela unveils new currency market for legal dollar sales; opponents call it devaluation

CARACAS, Venezuela – President Nicolas Maduro’s cash-strapped government unveiled a new currency market Monday that allows Venezuelans to buy and sell dollars legally for the first time since 2010.

The move has been called a giant devaluation by the opposition, with two-time presidential candidate Henrique Capriles taking to Twitter to denounce the “black Monday” overhaul that he said will further erode the savings of poor Venezuelans already suffering from 57 per cent inflation. The nation’s mounting economic woes are among the main drivers of protests that began last month seeking to force Maduro to resign.

Maduro’s socialist government has been increasingly safeguarding its shrinking supply of oil dollars, leading it to fall behind on payments to foreign suppliers and exacerbating shortages of imported goods in an oil-dependent economy where manufacturing is thin.

With decade-old currency controls in place, Venezuela’s bolivar currency this year nose-dived on the black market to one-12th of its official value. Venezuelans turn to the black market when they cannot purchase hard currency from the government at the official rate of 6.3 bolivars per dollar.

Economists said the new “Sicad 2” exchange system could alleviate some of the pent-up demand for dollars, and indeed the bolivar has rallied on the black market since details of the policy change emerged in recent weeks, according to Dolar Today, a website that tracks illegal trading in the currency.

Under the new system, the central bank matches dollar buyers and sellers who make bids through authorized banks and brokerages. While Oil Minister Rafael Ramirez said there is no limit on the amount or rate at which dollars can be acquired, satisfying demand will hinge on enough dollars coming to market from the state-run oil company, PDVSA, which is the source of 90 per cent of Venezuela’s export earnings.

The central bank is expected to publish daily the reference rate used in accepted transactions. On Monday, traders consulted by The Associated Press said the accepted rate fluctuated around 55 bolivars per dollar.

Former President Hugo Chavez in 2010 shut down a currency system that had allowed Venezuelans to obtain dollars legally by swapping government or PDVSA bonds in bolivars for ones issued abroad in dollars.