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Venezuela Bolivar Devalues 89% in Start of New FX Market

Tyler Durden's picture




 

Venezuela's exchange rate is a Gordian Knot of rules and regulations meant to baffle onlookers with bullshit and, we suspect, hide the hyperinflation from prying eyes just a little longer.

Today's launch of SICAD II, a new currency market which allows the free-market to bid for USD (in Bolivars), appears to be an effort to provide liquidity to a black-market for dollars. SICAD II priced at 55 Bolivars today - an 89% devaluation from the official rate of 6.29 (and another auction-based rate SICAD I - applicable to some firms - of 10.8).

 

This new SICAD II rate will replace SICAD I as the official tourist rate.

Confused? You should be - the bottom line is that Maduro and his cronies continue to suppress the reality of a hyperinflating currency as student marches grow ever more popular and outspoken.

 

The positive 'spin' is that SICAD II has lowered the black market rate but simply due to the additional liquidity and transparency that the platform provides - an 88% devaluation is nothing to be too excited about!!

 

Via Reuters,

"It is going to cover 7, 8 percent of real (dollar) demands, seeking equilibrium as regards the flow of foreign currency necessary for the functioning of the economy," Maduro said in a speech on Friday.

 

Sicad 2 essentially revives a previous system, known locally as the "permuta" or "swap" market, which Chavez shuttered in 2010 after accusing speculators of manipulating it.

 

Opposition politicians have long criticized the government's currency controls. Still, they are lambasting Maduro for what they call a "stealth devaluation" via the new system.

 

"Today will be 'black Monday'. Sicad 2 is another devaluation for our currency," Tweeted opposition leader Henrique Capriles. "Nicolas has also finished off the bolivar. Another blow to the poor."

 

Venezuela's annual inflation rate, currently at more than 56 percent, is the highest in the Americas.
 

As Bloomberg adds,

“This is a devaluation any way you look at this,” Tamara Herrera, chief economist at financial research firm Sintesis Financiera, said by phone. “The government is trying to bring down the black market rate with this new market, with the consensus that the dollar should be trading for about 50 bolivars.”

This was not an entirely unexpected move and we suspect a large number of players in today's auction were arbitrageurs who positioned in CDS for this platform's boost in liquidity and have profited from the move...

Bear in mind that most of the risk in VENZ CDS is devaluation risk (since its priced in USD) as opposed to credit risk - which for a very weak sovereign such as this is the same issue when it comes down to it...

 

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Mon, 03/24/2014 - 14:52 | 4586570 topspinslicer
topspinslicer's picture

89% ? Could be worse

Mon, 03/24/2014 - 14:54 | 4586576 Pladizow
Pladizow's picture

and it will be!

Mon, 03/24/2014 - 15:02 | 4586616 aVileRat
aVileRat's picture

Even with an 89% devaluation it's still 50% overvalued from the new peg according to the black market ask.

Speaking of black markets:

http://yro-beta.slashdot.org/story/14/03/24/0023236/cryptocurrency-excha...

 

Mon, 03/24/2014 - 15:20 | 4586684 DoChenRollingBearing
DoChenRollingBearing's picture

Peru has been growing for 15 years or so ever since it stomped on its nasty Communists (Shining Path).  Each new government has been fairly friendly to outside investors, especially in the mining sector (60% of Peru´s exports by dollar value).  These are my two new pieces on gold and other metals mining in complicated Peru:

"Gold and Other Metals Production in Peru" is first, then "Mines and Metals in Peru":

http://tinyurl.com/mk2fyt3

http://tinyurl.com/n3fxsf8

Mon, 03/24/2014 - 16:23 | 4586997 Oldrepublic
Oldrepublic's picture

Big inflation during Alan Garcia’s first time as President of Peru which reached 7,649% in 1990.

Mon, 03/24/2014 - 16:26 | 4587013 zaphod
zaphod's picture

Well at least Venezuela's bankers, who were able to borrow cheap debt to buy up assets, will now be able to pay off their loans on the cheap and thus acquire real assets for free. That's an upside right?

Mon, 03/24/2014 - 17:25 | 4587299 DoChenRollingBearing
DoChenRollingBearing's picture

There is a temptation for me to wait around until Venezuela goes all the down the drain, and then swoop in to buy some cheap assets (bearing companies?).  An issue, however, is finding one or more honest Venezuelans to take proper care of anything I were to have there.

Would finding any honest Venezuelans there be a problem?

Mon, 03/24/2014 - 16:16 | 4586964 Lux Fiat
Lux Fiat's picture

Are you referring to the Bolivar or the U$D?

No one has a perfect crystal ball, and the world has a lot of moving parts, but I have great respect for Rickards.

http://usawatchdog.com/fed-insolvent-dollar-will-collapse-90-or-more-james-rickards/

Mon, 03/24/2014 - 14:59 | 4586602 y3maxx
y3maxx's picture

...Wow...Venezuela is the New Incredible Destination value as the next Hooker Heaven.

Mon, 03/24/2014 - 15:12 | 4586656 TerminalDebt
TerminalDebt's picture

too late, they exported all their hookers to nearby caribbean islands

Mon, 03/24/2014 - 15:08 | 4586641 Itchy and Scratchy
Itchy and Scratchy's picture

Like 1 ply toilet paper?

Mon, 03/24/2014 - 16:36 | 4587061 Kirk2NCC1701
Kirk2NCC1701's picture

89%?  Fleshwound!  I've had worse.  Now come back here and fight!

Bring out your dead, bring out your dead!

Mon, 03/24/2014 - 14:58 | 4586597 Seize Mars
Seize Mars's picture

You would think that people would learn. It's not like there is a lack of data points.
Central planning causes poverty and death.
100% of the time.

Mon, 03/24/2014 - 15:07 | 4586637 bagehot99
bagehot99's picture

But proponents of the free market are way too circumspect about highlighting this fact, which I would do every morning, again in the afternoon, and once again before bed.

Mon, 03/24/2014 - 15:55 | 4586824 alangreedspank
alangreedspank's picture

They learn and know, they just don't care. They think they'll fare better supporting central planning because they think they're part of the "team".

Mon, 03/24/2014 - 15:03 | 4586620 youngman
youngman's picture

If you were smart..yo would check a tanker in your luggage and bring back a load of their subsidized gas....you could make some sheckles..as Icahn says

Mon, 03/24/2014 - 16:10 | 4586913 DoChenRollingBearing
DoChenRollingBearing's picture

That´s big business I read recently along the Colombia - Venezuelan border.  Buy cheap fuel in Venzuela and sell it for more in Colombia.

"Physical Arbitrage", fishez!

youngman, you should do some "on the spot" reporting and let us all know!  Include pictures!  Hola, chavistas!

;-)

Mon, 03/24/2014 - 15:07 | 4586621 Itchy and Scratchy
Itchy and Scratchy's picture

The FED & ECB salivate & dream about 56% inflation. Every single one of their problems wud be solved!

Mon, 03/24/2014 - 15:22 | 4586691 yogibear
yogibear's picture

Both the Fed and the ECB have wet dreams about massive inflation. A complete loss in confidence of the currency would cause a out-of-control situation for them. Rates going up and out control would crash their party.

Mon, 03/24/2014 - 15:27 | 4586718 Debugas
Debugas's picture

the difference is Fed and ECB print money in exchange for obligations to repay

in Venezuela they print it and give away for free

Mon, 03/24/2014 - 15:49 | 4586792 Itchy and Scratchy
Itchy and Scratchy's picture

Oh yes, I forgot .... the Fed enables the tax payers to borrow from themselves in exchange for obligations to repay themselves with the interest it recieves from themselves!

Mon, 03/24/2014 - 15:05 | 4586623 gafgroocK
gafgroocK's picture

 

 

 

Can some one do the math and tell me how this will effect my Final 4 Payout in terms of a dollar conversion?

Mon, 03/24/2014 - 15:53 | 4586815 sessinpo
sessinpo's picture

Murf_DaSurf   Can some one do the math and tell me how this will effect my Final 4 Payout in terms of a dollar conversion?

--

How much will you pay me in gold bars?

Mon, 03/24/2014 - 15:06 | 4586636 gwar5
gwar5's picture

Owchi-wa-wa!

Mon, 03/24/2014 - 15:07 | 4586638 pashley1411
pashley1411's picture

Venezula is just an extreme example of the favorite game of 21st century economics.  

Musical asset chairs, and those stuck with the currency, lose.   

Mon, 03/24/2014 - 15:07 | 4586640 hugovanderbubble
hugovanderbubble's picture

VENEZUELA is in technical Default ------------------Cuba - Nickel-------Brazil.....-SoyBean..... Chaos Coming baby

Mon, 03/24/2014 - 16:11 | 4586930 DoChenRollingBearing
DoChenRollingBearing's picture

I recently read that even Mighty Toyota is shutting down their assembly plant in Venezuela.

Mon, 03/24/2014 - 16:23 | 4586996 dontgoforit
dontgoforit's picture

A gentleman from Venezuela and I had a few minutes discussion about the situation there yesterday after church.  Having been there some years ago I knew a little about the history prior to Chavez.  The man was beside himself saying how the country used to be such a great place to visit and how now it was ruined and most likely was not going to recover.  I told him to keep praying.  It ain't over till it's over.  I can only imagine how heart sick he really is.  And I told him I see America headed in the same direction and how some of us were getting that feeling too - that it may never get 'unruined' again.

Mon, 03/24/2014 - 17:43 | 4587393 DoChenRollingBearing
DoChenRollingBearing's picture

.

"I told him to keep praying."

Best advice in the world.

Mon, 03/24/2014 - 16:38 | 4587071 Kirk2NCC1701
Kirk2NCC1701's picture

I heard that Chevy will be taking over, to build their new Chevy No-Va.  ;-)

Mon, 03/24/2014 - 17:39 | 4587376 DoChenRollingBearing
DoChenRollingBearing's picture

¡No va!  ¿Comprarias un carro nombrado asi?

LOL, Capitan!

Mon, 03/24/2014 - 15:09 | 4586646 Itchy and Scratchy
Itchy and Scratchy's picture

Viva La Revolutione!

Mon, 03/24/2014 - 15:11 | 4586652 TideFighter
TideFighter's picture

IMO, V's are incredibly corrupt people. They cheat at cheating.

Mon, 03/24/2014 - 15:19 | 4586681 fijisailor
fijisailor's picture

More details on Sicad 2 please.  Where is this exchange (assumed local but not stated clearly) and who is running it?

Mon, 03/24/2014 - 15:28 | 4586720 Escapedgoat
Escapedgoat's picture

Can I ask a reasonable question here??

 

WHO OWNS AND RUNS the CENTRAL BANK IN VENEZUELA?

 

Somebody that also has a link with the FACTS plase,  Assumptions will not wash .

 

Thank you.

Mon, 03/24/2014 - 15:55 | 4586825 sessinpo
sessinpo's picture

Escapedgoat   Can I ask a reasonable question here?? Somebody that also has a link with the FACTS plase,  Assumptions will not wash .

--My reasonable response is: Do your own homework. If there is a link, you can find it. If you want me to do your homework, PAY ME!

Mon, 03/24/2014 - 15:41 | 4586766 Rising Sun
Rising Sun's picture

Time for the US to show up with a few crisp $100 bills and buy this shitbag country.

Mon, 03/24/2014 - 16:12 | 4586936 DoChenRollingBearing
DoChenRollingBearing's picture

 

 

¡No gracias!

Mon, 03/24/2014 - 17:10 | 4587230 Charles Wilson
Charles Wilson's picture

Wow!  Time for some Venezuelan  Exports.

Imagine how cheap those Venezuelan Tennis Shoes are gonna be now!

Or some high quality Machine Parts.

Computers?  Anything?

 

Oh, yeah! I forgot!!!

 

CW

Mon, 03/24/2014 - 17:27 | 4587272 TalkToLind
TalkToLind's picture

Mujeres Venezolanas, escuchar. He enjuague bucal, pasta dental, papel higiénico, agua potable y carne picada. Hit me up, primer llegado, primer servido.

 

Y'all English speaking bitchez can put that shit into Google translate.

Mon, 03/24/2014 - 17:41 | 4587385 DoChenRollingBearing
DoChenRollingBearing's picture

You should have addressed your remarks to all of the pretty ones!

Do NOT follow this link or you will be banned from the site!