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National Center for Foreign Commerce

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National Center for Foreign Commerce (CENCOEX)
Centro Nacional de Comercio Exterior
Agency overview
Formed2015
Preceding agencies
  • Régimen de Cambio Diferencial (RECADI) (1983–2003)
  • Comisión de Administración de Divisas (CADIVI) (2003–2015)
JurisdictionGovernment of Venezuela
HeadquartersCaracas
Annual budgetUS$50 billion (2009)
US$30 billion (2010)[1]
Parent agencyMinisterio del Poder Popular de Planificación y Finanzas
Websitewww.cencoex.gob.ve

The National Center for Foreign Commerce (Spanish: Centro Nacional de Comercio Exterior, CENCOEX),[2] formerly the Commission for the Administration of Currency Exchange (Comisión de Administración de Divisas CADIVI), is the Venezuelan government body which administers legal currency exchange in Venezuela. The official buy/sell exchange rate was initially fixed at Bs.F. 4.28/Bs.F. 4.30[3] per US dollar (USD). Currently the official buy/sell exchange rate is fixed at Bs.F. 10[4] per USD.

History

Timeline of Foreign Exchange Regimes[5]
Period System Classification
1964–1983 Fixed exchange rate Free capital mobility
1983–1989 RECADI Exchange Control
1989–1992 Floating exchange rate Free capital mobility
1992–1994 Microdevaluations Free capital mobility
1994–1996 OTAC Exchange Control
1996–2002 Exchange Bands Exchange Control
2002–2003 Floating exchange rate Floating controlled
2003–present CADIVI and others Exchange Control

In 1983, a similar agency called "Differential Change Regime" (Régimen de Cambio Diferencial(RECADI)) was established to manage a system of differential exchange rates and capital controls,[6] and disbanded in 1989 when the differential exchange rate system was abolished.[7] RECADI saw widespread corruption, and became a substantial scandal in 1989 when five former ministers were arrested, although the charges were later dropped.[8]

Exchange controls under CADIVI were adopted on 5 February 2003 in an attempt to limit capital flight,[9] in the aftermath of a two-month strike/lockout aimed at toppling the government, which saw GDP fall 27% during the first four months of 2003.[10]

In 2008, the Chavez government revalued the Venezuela currency by a ratio of 1:1000, thus creating a new currency known as the bolívar fuerte (Eng.: "bolivar") but kept the currency pegged to a higher rate against the dollar than the market value. Since 2003, this has created a scarcity of foreign currency, as confidence in the bolivar declined, and foreign exchange, especially the U.S. dollar, was in greater demand.[11]

Functions

The value of one US dollar in Venezuelan bolívares (VEF) on the black market through time, according to DolarToday.com. Blue vertical lines represent every time the currency has lost 90% of its value relative to the US dollar since the last one. This has happened four times since 2012, meaning that the currency is worth, as of December 2017, less than one ten-thousandth of what it was worth five years ago, since it has lost 99.99% of its value. The rate at which the value is lost (inflation) is rapidly accelerating. The first time the money took 2 years and 2 months (an implied monthly inflation rate of 9.3%) to lose 90% of its value, the second time 1 year and 10 months (implied rate 11% m/m), the third time only 10 months (implied rate 26% m/m), and the fourth time a mere four months (implied rate 77% m/m).

According to the Bank for International Settlements, "The Central Bank of Venezuela (BCV) fixed a monthly allocation of foreign currency to be administered by CADIVI, purchases foreign currency from residents, and sells foreign currency to the public and private sectors subject to approval from CADIVI."[12] Under Venezuelan law PDVSA must sell its foreign exchange to the Central Bank, thereby providing the bulk of foreign currency in Venezuela. The Venezuelan private sector requires more foreign exchange for imports than it generates for exports, and is dependent on the Bank to satisfy the difference.[12]

Exchange rates

The agency makes hard currency available to importers at several rates, with the best rate, CENCOEX, the official exchange rate 1 U.S. dollar for 6.3 bolivars, available to importers of food and medicine. A double rate, Complementary System of Foreign Exchange Administration (Sistema complementario de administracion de divisas (SICAD I)), twice the official exchange rate but still favorable, goes to importers of culturally important items such as Scotch, popular in Venezuela, and Barbie dolls, again, popular with certain demographics. A third rate, Alternative Foreign Exchange System (Sistema cambiario alternativo de divisas (SICAD II)), quite unfavorable at 50 times the official exchange rate, is offered to other importers.[2] The black market rate, as of late December 2014, was 173 to 1 and rising rapidly. Publication of unofficial exchange rates within Venezuela is a crime; rates are published on external sites.[2][13]

Fraud

Fraud is widespread, with importers, regulators, and ordinary citizens stealing billions from the Venezuelan economy using one mechanism or another. Importers, for example, may simply sell the hard currency on the black market and not import anything, only part of what they declared, or at grossly exaggerated prices. A regulator may charge extra for exchange.[14] Venezuelans who were granted hard currency for foreign travel or study can withdraw the hard currency from their credit cards and rather than spend it in a foreign country they can stay home and exchange the foreign currency back for bolivars at a profit in the Venezuelan black market. The conversion of foreign currency linked to a credit card into physical cash is colloquially referred to as "scraping". The volume of "scraping" engaged in was evident by the numerous empty seats, reserved by scrapers, on airplanes leaving Venezuela for foreign destinations.[15]

See also

References

  1. ^ Budget of Venezuela for 2010 "Venezuela's budget for 2010"
  2. ^ a b c "Venezuelan Currency Controls and Risks for U.S. Businesses" (PDF). state.gov. U.S. Embassy Caracas. March 25, 2014. Retrieved 5 May 2015.
  3. ^ CADIVI Convenio Cambiario 2, CADIVI
  4. ^ "Tipos de Cambio de Referencia" (in Spanish). Central Bank of Venezuela. Retrieved 8 November 2016.
  5. ^ "Del Recadi al Simadi: 40 años de sistemas fallidos". Prodavinci.
  6. ^ George D. E. Philip (2003), Democracy in Latin America: surviving conflict and crisis?, Wiley-Blackwell. p. 143
  7. ^ Kevin J. Middlebrook (2000), Conservative parties, the right, and democracy in Latin America, Johns Hopkins University Press. p. 130
  8. ^ Damarys Canache, Michael R. Kulisheck (1998), Reinventing legitimacy: democracy and political change in Venezuela. Greenwood Publishing Group. p. 123
  9. ^ CADIVI, CADIVI, una medidia necesaria Archived 2008-12-05 at the Wayback Machine
  10. ^ Jones, Bart (2008), Hugo! The Hugo Chavez Story from Mud Hut to Perpetual Revolution, London: The Bodley Head. p. 386
  11. ^ "The Use of Foreign Exchange Controls to Promote Economical Stability". earnforex.com. Retrieved 8 July 2013.
  12. ^ a b Bank for International Settlements (2005), "BIS Papers No 24: Foreign exchange market intervention in emerging markets: motives, techniques and implications", May 2005
  13. ^ BRIAN ELLSWORTH AND CORINA PONS (23 December 2014). "Venezuela currency controls make Scotch cheap as milk, syringes go short". Reuters. Retrieved 5 May 2015. Maduro's government maintains three exchange rates assigned to different types of products: the best rate of 6.3 bolivars per dollar for food and medicine, an intermediate rate of around 12 called Sicad I for less important goods, and a "complementary" third rate of around 50 called Sicad II. The black market exchange rate is 1 dollar for 173 bolivars, and has depreciated 40 percent since the start of November.
  14. ^ William Neuman and Patricia Torres (May 5, 2015). "Venezuela's Economy Suffers as Import Schemes Siphon Billions". The New York Times. Retrieved May 5, 2015. The government's complex currency system has led to exorbitant schemes by importers, who wildly inflate the value of goods brought into the country to grab American dollars at rock-bottom exchange rates. Sometimes, they fake the shipments altogether and import nothing at all.
  15. ^ Ewan Robertson (7 October 2013). "Venezuelan Authorities to Combat Foreign Currency Scam with Fingerprint Devices". Venezuelanalysis.com. Retrieved May 5, 2015. citizens are allocated annual amounts of dollars for specific activities such as travel and foreign study.
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