US dollar skyrockets in Venezuelan swap market

Barclays believes that the Central Bank of Venezuela will purchase the securities from Pdvsa (File photo)

Economy
May 4

Rising US dollar in unofficial market increases inflationary pressure
The US dollar is steadily increasing in the swap market in Venezuela, as it hit another record that threatens to trigger price increases in several goods that are not imported with foreign currency at the official exchange rate.

Currency traders claimed that the US dollar supply fails to meet the demand of companies and individuals. They added that foreign exchange requirements amount to USD 80 million per day, whereas the Central Bank of Venezuela (BCV) has provided less than USD 10 million a day so far this year.

The BCV provides US dollars through the sale of US-denominated bonds maturing in 90 days, but its participation in the market has been sporadic.

Currency traders said that the Venezuelan Securities and Exchange Commission has begun to perform audits of brokerage firms to collect data on the foreign exchange unregulated market.

"There have been visits to check currency transactions in the market, and some audits to collect data," said a trader.

Traditionally, the US dollar has tended to fluctuate around what economists refer to as the implicit exchange rate, which results from dividing all the VEB in circulation by the international reserves. The current value of this division is 8.6. Currency traders consider that this amount may be the top value of the US dollar at the swap market.

May 5

Venezuelan lawmaker: Govn't monitors the swap market
The president of the Committee on Finance, National Assembly, Ricardo Sanguino, announced that the Executive branch of government and the National Assembly are assessing the behavior of the swap market.

He said that "there is an erratic behavior that has nothing to do with a normal performance."

Sanguino said that the government would take measures, depending on the assessment of the situation.

On the other hand, the Committee on Finance approved four additional credits amounting to USD 119.76 million.

May 6

Barclays Capital: Pdvsa to sell US dollar-denominated bonds
According to a report issued on May 6 by Barclays Capital, the Venezuelan government, through state-run oil company Petróleos de Venezuela (Pdvsa), will sell US dollar-denominated bonds in coming weeks to increase foreign exchange supply and curb the US dollar rally in the swap market.

Barclays says that as depreciation of the Venezuelan bolívar increases in the parallel market, thus affecting the prices of a wide array of products, the possibility of a bond issue amounting to USD 3 billion grows.

Barclays considers that Pdvsa bonds will be purchased by the Central Bank of Venezuela. They would be resold in the secondary market through weekly operations as the Central Bank has done so far this year.

May 7

Dollar increases in a swap market operating at half speed
Venezuela's Securities and Exchange Commission (CNV) has been monitoring a number of brokerage houses, thus freezing operations in the so-called foreign exchange swap market.

According to traders, CNV inspectors have checked amounts, buyers and sellers. As a result, brokerage firms have reduced transactions to a minimum because they fear that the regulator may consider that the firms are carrying out speculative operations.

In general, when a brokerage firm has a client who needs to buy a significant amount of dollars, it asks another firm for foreign exchange, but these operations have been halted.

"The market is in a freezer. Only large customers' operations have been finalized. Transactions between brokerage houses are very limited," said the president of a brokerage firm who requested anonymity.

The US dollar has rallied in the swap market to hit a record high, although at a slower pace than in previous days.

A report by Barclays Capital, dated May 6, stated that Venezuelan state-run oil conglomerate Pdvsa may sell USD 3 billion in bonds in coming weeks. Buyers will be able to pay the bonds in Venezuelan bolivars.

The price of the US dollar in the parallel market is used as a benchmark and its fluctuations affect the prices of at least one third of imports.