Venezuela: Government unveils details on Sicad II
March 11, 2014
On 11 March, the government unveiled rules for the long-awaited new exchange rate mechanism, the Second Complementary Administration System for Foreign Exchange (Sicad II). The new system will allow individuals and businesses to purchase and sell foreign currency in cash or bonds daily through approved intermediary institutions. While the price of the foreign exchange will be freely set by the market and there will not be any cap, the government reserves the right to intervene in order to avoid and counteract “erratic fluctuations”. On a daily basis, the Central Bank will publish a weighted average rate covering all transactions. Authorities, however, failed to deliver details on the total amount of funds that will be available in the Sicad II system nor the estimated exchange rate. The new system is expected to begin operations on 20 March. The Sicad II represents the country's third exchange rate mechanism after the official exchange rate, which sells dollars at 6.30 VEF per USD for preferential goods, and the Sicad, which offers U.S. dollars at around 11.30 VEF for other items. With this move, Venezuelan authorities hope to ease dollar shortages and counteract widespread black market activity, which is currently selling U.S. dollars at 80 bolivars each. The Sicad II is expected to bolster revenue in order to plug a widening fiscal gap while also helping to stabilize soaring inflation. LatinFocus Consensus Forecast panelists see the official exchange rate ending this year at 10.65 VEF per USD. Next year, the panel sees the bolivar deprecating further to 13.56 VEF per USD.