For up-to-date exchange rate numbers (including the SIMADI) rate, visit this website.
Minister of Finance Rodolfo Marco Torres announced the much-anticipated overhaul of the currency exchange system today, creating a new system that will trade U.S. dollars at a “completely free-floating” rate.
According to Torres, the new currency exchange system will have three tiers, and will look like this:
- Tier 1 (Fixed at Bs. 6.30 = $1): This will not change from the system currently in place. Torres said this rate will be used exclusively “for the food and health sectors, and for priority imports”. Torres says that this rate will cover 70% of the country’s import necessities.
- Tier 2 (Starting at Bs. 12 = $1): This tier is a combination of the current SICAD I and SICAD II systems. This tier will begin trading at Bs. 12 per dollar, but Torres said “we will see how this [rate] will move“, meaning that it would not be fixed. This rate would cover 30% of the country’s import necessities; that is, from non-essential sectors.
- Tier 3 (Sistema Marginal de Divisas [Marginal Exchange System]): This new system, called SIMADI, is new. It will be a free currency exchange system, where sellers and buyers of U.S. dollars will meet an exchange currency at a rate decided by the market. This system will be put in place to deter from people from buying U.S. dollars from the black market.
Economists Pessimistic About Reform
Criticism of the minister’s reform announcement came quickly from the country’s economists.
Asdrubal Oliveros, an economist at Ecoanalitica, criticize the government’s refusal to completely eliminate trading at Bs. 6.30 per dollar, calling it a “grave error” and arguing that it would only lead to further loses in acquiring raw materials. Oliveros also estimated that SIMADI would probably open trading anywhere between Bs. 125-145 per dollar.
What will really make SIMADI inefficient is the Bs. 6.30 fixed rate, which is a type of exchange that makes no economic sense. It’s an exchange system that forces money given at that rate to not be used exactly for imports, but [the money] ends up not bringing in any merchandise at all, something that is already known.
Garcia was referring to the fact that between 2011 and 2013, $20 billion were embezzled through CADIVI, the previous currency exchange system. Shell companies applied for dollars at the lowest rate for imports that never made it into the country.
Jose Guerra, an assistant professor at the Faculty of Economics in the Universidad Central de Venezuela, questioned how the government would divvy up dollars among the different rates, saying on Twitter:
Does anyone with common sense believe that the government will assign enough dollars at [the rates of] Bs. 6.30 and Bs. 12? The real winner here is the parallel market
Luis Vicente Leon, the president of Datanalisis and professor at the Universidad Catolica Andres Bello also criticized the government’s insistence on fixing the rates at such low levels, saying:
Maintaining the majority of the assigned [dollars] at a completely absurd exchange rate of Bs. 6.30 is obviously inadequate.
Bs. 12/dollar is an absurdly low rate, and the demand for currency will not decrease during a crisis; rather, the opposite will happen.
The strategy of keeping multiple exchange rates maintains… the inefficiency and corruption that already existed.
I don’t see any of the government’s announcements as being good news at all. Maintaining a great quantity of foreign currency at the Bs. 6.30 rate, an overvalued rate, is completely absurd. It hyper-stimulates the demand for foreign currency and keeps up a distortion in the middle of a severe crisis along with a fall in [national] income of 50%.
Leon called the new system nothing more than a ‘repeat” of the old system.
Ronald Balza, an economist and professor at the Universidad Central de Venezuela, suggested that the Bs. 6.30 rate would drain the country’s foreign reserves, making dollars scarce at the other rates. He suggested that a better idea would be to completely eliminate the Bs. 6.30 rate and instead allocate dollars for food and medicine in the country’s annual budget.
Opposition leader Henrique Capriles took a more direct tone against the government’s announcement, saying:
They say that the Bs. 6.30 rate will be used to buy food and medicine. What food? What medicine? We don’t have any. If you go to a pharmacy, you can’t even find Tylenol for headaches. It’s all lies.
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