The National Center for Foreign Commerce ( es, Centro Nacional de Comercio Exterior, CENCOEX), 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 Venezuela (; ), officially the Bolivarian Republic of Venezuela ( es, link=no, República Bolivariana de Venezuela), is a country on the northern coast of South America, consisting of a continental landmass and many islands and islets in ...

. The official buy/sell exchange rate was initially fixed at Bs.F. 4.28/Bs.F. 4.30 per US dollar (

USD The United States dollar (symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the official ...

History

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, and disbanded in 1989 when the differential exchange rate system was abolished. RECADI saw widespread corruption, and became a substantial scandal in 1989 when five former ministers were arrested, although the charges were later dropped.

Exchange control Foreign exchange controls are various forms of controls imposed by a government on the purchase/sale of foreign currencies by residents, on the purchase/sale of local currency by nonresidents, or the transfers of any currency across national bor ...

s under CADIVI were adopted on 5 February 2003 in an attempt to limit

capital flight Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence or as the result of a political event such as regime change or economic globalization. Such events could be an increas ...

. 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.

Functions

According to the

Bank for International Settlements The Bank for International Settlements (BIS) is an international financial institution owned by central banks that "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work th ...

, "The

Central Bank of Venezuela The Central Bank of Venezuela ( es, Banco Central de Venezuela, BCV) is the central bank of Venezuela. It maintains a fixed exchange rate for the Venezuelan bolívar and since 1996 is the governing agent of the Venezuelan Clearing House System ...

(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."

(2005)
"BIS Papers No 24: Foreign exchange market intervention in emerging markets: motives, techniques and implications"
May 2005 Under Venezuelan law

PDVSA Petróleos de Venezuela, S.A. (PDVSA, ) (English: Petroleum of Venezuela) is the Venezuelan state-owned oil and natural gas company. It has activities in exploration, production, refining and exporting oil as well as exploration and production ...

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.

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. 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.

Fraud

Fraud In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compen ...

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. 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.

References

External links