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Exchange control and its effects during 15 years in Venezuela

The restriction to the free convertibility of the currency began to be in force in Venezuela in 2003. The regulations in force for 15 years in the country prohibited the sale and purchase of foreign currency to individuals, except in those cases in which certain transactions authorized through the Exchange Agreements in force, which regulate foreign exchange transactions, were used.

Regulations have changed over timeThe process of exchange rate regulation has evolved from the fixing of a single official exchange rate to dual exchange rates and other types of mechanisms through alternative ways of determining the exchange rate. It is worth mentioning that for a period of time the regulation of the process was the responsibility of the Foreign Exchange Administration Commission (Cadivi), which was later replaced by the National Center for Foreign Trade (Cencoex). Finally, with the measures recently adopted by the Central Bank of Venezuela (BCV) and the National Executive, are responsible for the administration of foreign currency at the Dipro and Dicom exchange rates.

The exchange legal system related to the circulation, conversion and valuation of currency. The BCV has its origin in sub-legal acts that support the foreign currency administration system based on: the mandatory sale of foreign currency to the BCV derived from exports, services rendered and technological supplies; and the system of sales of foreign currency to those who request it, to private economic agents and private organizations that so request it.

The change to the national currency to any foreign currency by any other means different from the BCV. and its authorized sources, such as banking entities established in Venezuela and registered, was subject to criminal prosecution and punished with a fine equivalent to double the amount obtained and with imprisonment from 3 to 7 years, as established in the Law of Exchange Illicit Acts and in the Law of the Exchange Regime and its Illicit Acts. Likewise, exchange operations carried out outside the BCV were qualified as "Use of non-official exchange rate to establish prices", an act punishable with imprisonment from 7 to 12 years and a fine equivalent to 200% of the difference between the exchange rate used in the illegal transaction and the official rate.

In all these processes, the final authorization to obtain the foreign currency is issued by the governing administrative agency.The foreign exchange administration system was established by the Central Bank, the institution that has the power and discretion to approve or disapprove the exchange operation. Part of the sub-legal instruments that supported the foreign exchange administration regime between 2003 and 2014 were determined in the following Exchange Agreements:

  • Exchange Agreement Number 1The exchange control stage in Venezuela began on February 5, 2003 with a quotation of Bs. 1,600 per dollar for sale. The amount increased to Bs. 2,150 per dollar for sale in March 2005. Those interested in acquiring foreign currency had to provide all the required data on the Cadivi web page, submit the registration application and the necessary documents to the authorized bank operator.
  • Exchange Agreement Number 14The exchange rate was established on January 8, 2010 establishing a dual exchange rate calculated at Bs.F. 2.60 (Rate I) and 4.30 (Rate II) per dollar for sales. The Type I rate was assigned to the importation of food, medicines and priority implements for social security and assistance. The Type II rate corresponded to the rest of the sectors of the economy. In December 2010 the two rates were unified at Bs.F. 4.30 per dollar for sale.
  • Exchange Agreement Number 22It appeared in July 2013 under the title "Norms that establish the Regime for the Acquisition of Foreign Currency by the Public Sector". Through this mechanism, the system of special auctions under the Complementary System for the Administration of Foreign Exchange (Sicad) began to be established. The first auction to individuals and legal entities was executed in July 2013 for the amount of Bs.F. 11.30 per dollar for sale.
  • Exchange Agreement Number 25The regulation subtracted from the Cadivi rate to the rate resulting from the Sicad auction the exchange operations related to: leasing and service contracts, use and exploitation of patents, trademarks, licenses and franchises, as well as the import of intangible goods; public international air transport services for passengers, cargo and mail; international investments and royalty payments, use and exploitation of patents, trademarks, licenses and franchises, as well as contracts for the import of technology and technical assistance; and operations related to the insurance activity.
  • Exchange Agreement Number 26Sicad: Originated in February 2014, it establishes that the special foreign exchange auctions carried out in the Sicad, would be administered and managed by Cencoex. The first average exchange rate for operations was Bs.F 11 per dollar for sale.
  • Exchange Agreement Number 27It was established in March 2014 with the creation of the Alternative Foreign Exchange System (Sicad II), through which a daily system of auctions was guaranteed with the participation of private and legal persons of public and private law. The last quotation reached Bs.F. 52.10 per dollar for sale.
  • Exchange Agreement Number 28In April 2014 exchange houses were allowed to intervene in the Sicad II market through retail operations. In order to participate, exchange houses had to request authorization from the BCV and the Ministry of Finance.
  • Exchange Agreement Number 33Foreign Exchange System: Created in February 2015 under the name "Normas que regirán las Operaciones de Divisas en el Sistema Financiero Nacional" (Norms that will govern Foreign Exchange Operations in the National Financial System) established the basis for the Marginal Foreign Exchange System (Simadi), whose exchange rate would be the result of the average of the operations carried out. The first quotation was at the rate of Bs.F. 170 per dollar for sale.

On August 2, 2018, the National Constituent Assembly of the Republic agreed to the repeal of the exchange offensesThe decree was published in Official Gazette No. 41,452. The purpose of the decree is to encourage investments in foreign currency while facilitating foreign exchange transactions between individuals, as well as the participation in the socio-economic model of the country.

Article 2 of the new regulations eliminates the punitive sanctions for those who trade in foreign currency by determining that "As of the entry into effect of this Constituent Decree and without prejudice to the provisions of Article 3 ejusdem, the Decree with Rank, Value and Force of Law of the Exchange Regime and its illicit activities; Article 138 of the Decree with Rank, Value and Force of Law of the Central Bank of Venezuela is hereby repealed insofar as it exclusively concerns the illicit activity referred to the negotiation and trading of foreign currency in the country, and all those regulatory provisions insofar as they abut the provisions of this Constituent Decree". This measure could imply that the Venezuelan State is paving the way for a new economic model.

In the following downloadable article The background of this derogation, as well as the legal guidelines for its interpretation, can be found here.