Si-Cad Or So-So-Cad in Venezuela’s new fx system?

March 11, 2014

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Almost eleven months ago, Nicolas Maduro was elected President and since then, the Government’s economic team has been telling us about the new foreign exchange system (fx for short) in the works, which was almost ready. Today, everyone wants me to write about the “new” and “improved”  fx system, called Sicad 2, but there is not that much really that I can say about it. The Devil is in the details and we still don’t know most of them.

Meanwhile, Maduro keeps thinking that talking and not working, is the way to survive as President. He now has a new program (above), While that may have been something good to do for his former boss, he just does not foot the Bill. I mean who wants to listen to Nicolas give us his usual BS that half of Venezuelans are right wing fascists oligarchs, and the other half pure PSUV socialists? If that were true, there would be hope for Venezuela, not because we need more oligarchs, we have enough with Chavistas, but because there would be more market ideas, which does not seem to be what the opposition is proposing either. But Nico sounded nostalgic tonight, maybe he has been reading too much Dieterich these days. Eight weeks left of this nightmare? First time I am rooting for a Chavista prediction!

But going back to the new fx system, the so called Sicad-2, which is what people want to know about, all I can sayis , so far it looks like So-So-Cad, more than Si-Cad in my opinion. And I do hope they change my mind in the upcoming days. I would love to be proven wrong.

But let me be clear: Sicad-2 is a huge and positive step for Chavismo. First, it is a significant break with their ideological straight jacket, which has tied them for so long, and it it is very positive step for PDVSA, which will improve its cash flow by selling dollars at a much higher rate than the official Bs. 6.3 per US$ or the Sicad-1 rate of Bs. 11.8 per US$.

End of positives.

Because in Sicad-2, the Government has not created a foreign exchange market, but as usual, a complicated auction-like system, in which it is not clear who will win and how much you win. This is typical Chavista thinking: They spend eleven months thinking of what to do and come up with a Goldberesque system for fx trading.

To begin with, what is the fixation with bonds? Why can’t people trade Bolivars for US Dollars, Euros, or Yuans?  (or vice-versa). Remember that bonds were introduced in the fx system as a pantomime to mask the true fx rate at which things were being done. The Government made it a criminal activity to buy or sell Bolivars for dollars or vice-versa, unless you used securities. You could not even say at what equivalent price transactions were being made.

But now, neither how you do it, nor saying the price is illegal. You can even say the price of even the black market, it is no longer a crime. Remember all those brokers jailed in 2010? The case against them has been dropped, as the new Foreign Exchange Illicit Bill, decriminalized everything they were accused of doing.

So, why not forget about bonds? The Venezuelan Central Bank will actually state at which rate each batch of dollars will be sold on average.

Anyway. The new and improved Sicad-2 will begin operating…soon. We still need the rules and regulation. But if we are to believe the authorities, it will work something like his:

You go to your friendly bank, where you will say you want to buy x dollars and you given them a range of prices at which you want to buy (or sell if you are deranged enough). (You need an account in Venezuela and in dollars first)

Your bank, will create a spreadsheet with all its postures, which it will send two or three times daily to the Central Bank. You can only place a single posture per day. Unlimited, in amount or price.

The Venezuelan Central Bank will come back to you and say Si-Sicad for you, or No-Sicad for you, without explanation, after “matching” buying (bids) prices and sell (offer) prices. At the end of the day, the Central Bank will publish only the average price of all dollars sold.

So, this is not a market, it is a pseudo-auction system, where only the Central Bank will know bids and asks and what it does with them.

Fairly opaque in the details.

The system has no upper bands, limits and is flexible, but nothing says there will be unlimited offer to all the bids. In fact, I am sure there will be limited offer only. Nothing says that if you want to buy 1 million dollars at Bs. 100, they will give it to you. In fact, they may give it to you cheaper, as the Government has the right to intervene to keep the price down.

So, it is still is unclear. My opinion is that the Government has very limited resources for this market. Thus, initially there may be some optimism, which will fade fast. No matter what you may have heard, the parallel market (it is no longer black) has barely budged, suggesting some level of skepticism with the new Sicad-2 system.

At the same time, there will be little demand at the beginning. The large buyers (multinationals) will have to review the foreign exchange agreement, the regulations and the Foreign Exchange illicit Bill before they can even begin to operate in this new Sicad-2 market. The small buyers (you!) will have to open a dollar account in Venezuela, which is apparently one of the requirements to participate.

So, it may be on Maduro’s first year anniversary as President in mid-April (which falls in the middle of Dieterich’s prediction) before Sicad-2 shows its true dynamics and whether it is a real positive or not. In my humble opinion,there will be too many exchange rates, not enough transparency and too many limitations. The Government in trying to solve economic distortions, simply creates more and more, without understanding the true implications. To begin with, a new price for the dollar, which represents a huge devaluation, implies allowing prices to rise in the middle of 56% inflation per year. The Government has yet to understand that a foreign exchange market is not economic policy, but a transactional part of the economy. If it does not create other rules and regulations, it will all be a waste of time.

But if Sicad-2 is all they could come up with in eleven months, there is little hope for the rest of the policies. Thus, maybe Dieterich is right.

I just find it hard to be that optimistic.

40 Responses to “Si-Cad Or So-So-Cad in Venezuela’s new fx system?”

  1. m_astera Says:

    “My opinion is that the Government has very limited resources for this market.”

    LOL. I think you are on to something there….

  2. Bruni Says:

    It really makes my blood boil reading the guy that is ideologically responsible for 15 years of destruction of the country, now giving very shallow advise and separating himself from the disaster. Like he had nothing to do with it.

    The advise is: stop the 55% inflation, solve the unavailability of goods problem and solve the lack of security problem. A 10 year old living in Venezuela would have come with better advise.

    • Lecherous Drunk Says:

      “stop the 55% inflation”
      Impossible. They owe more Bolivars Flacido than they collect each month. That means they have to print to pay everyone they owe in Venezuela.

      “solve the unavailability of goods problem”
      That means they will have to float the currency and allow markets to set prices. Basically undo all they have done.

      “solve the lack of security problem’. They have created well armed pramilitary organizations that they cannot control. Unlike Brownshirts, the paryy has lost control of their creation.

      The auction proposed is an attempt to collect Bolivars from the $ buyer, in the attempt they will tell every buyer you paid the most that day. the rate for Monday was 40, but you got stiffed with 50. At the same time they get to keep the $ in banks that they can seize the cash when they want. They will wait until people use the system, $ get tied up in the banks, then they will seize them.

      At $30 million a day, it is $1 for each citizen being auctioned each day. Now what use is that in stocking the shelves?

      • Ira Says:

        I don’t understand 99% of what you said, but I understand 1% of it:

        My wife and I are on a mission to get our niece out of VZ and here to Florida, and we wanted to get dollars to her to open one of these accounts:

        To give her a little transaction edge now, and for other purposes to support her until we get our wish and she’s able to emigrate.

        But how the hell can you trust this administration to not seize the dollars? Hell, that’s all they’re GOOD at–seizing property and money (in addition to not paying their bills).

        • Lecherous Drunk Says:

          Buy a plane ticket in her name (assuming she has a US visa). I doubt most flights will be operating in 2 months. Either that or a bus ticket to Bogota. She will be safer in Bogota than Caracas. Its going to get a lot worse in Venezuela before it stabilizes.

  3. Dr. Faustus Says:

    “To begin with, a new price for the dollar, which represents a huge devaluation,…”

    What this really means is a dramatic INCREASE in the level of poverty throughout Venezuela. It will be stunning to most people when it hits,…and soon. So all of those cooked-up statistics from the government showing poverty being eliminated from 2005 to 2010, and then handed-out to a gullible media, is out the window. Poof! Gone. Will anyone now take notice of the complete squandering of all that oil wealth? Where are you Eva Golinger, Sean Penn and the rest of you knuckleheads? Where’d all that money go? Nothing to show for it, …ALL gone. Hundreds of billions of dollars, and people are now WORSE off than before. Tell us, Eva, whose fault was that? hmmm?

  4. metodex Says:

    The posibility of them doing something that is actually beneficial for the majority of the people is very difficult for me to understand.
    So if they start doing things “right”,the protests stop? We forget the past 15 fucking years and let them keep driving this ship?
    No-way-in-hell. I want democracy,i want representation. I don’t want a one or two party system. NEVER underestimate our democratic freedoms. The venezuelan people have done this for too long!


  5. They’re only going to give out $30 MM a day, that comes out to $6 billion a year, for an economy with a supposed GDP of $400 billion? That’s the proverbial drop in the bucket.

    When they quit these sideshows we’ll be on to something. Until then it’s just pissing on the forest fire to see what happens…

    The reality is that Venezuela is in for a period of hyperinflation when the adjustment to the new exchange rate ever kicks in. It will be a multiple of today’s – some where between Sicad and DolarToday!

  6. captainccs Says:

    Si-Cad Or So-So-Cad in Venezuela’s new fx system?

    Si-Ca-Ga-Da Venezuela’s new fx system!

    Devaluation is not the cause of poverty any more than fever is the cause of illness. Devaluation is the result of economic mis-management caused by corrupt looting and ideological stupidity. Unless you give these guys a brain transplant there is no way they can solve the problems. Even if they knew the solution they would be prevented from putting it into practice by corruption, ideology and their puppet master in Havana.

  7. concerned Says:

    No transparency in the bids equates to preferential sales to loyalists, friends and family as well as there companies, shadow or real. Not sure your average Jose is going to have access to the system.

    And who would trust to open and deposit dollars into an account in Venezuela right now under the conditions of this illigitimate government as a prelude to possibly getting access to a system that should be open and fair for all?

    Who was it that said “There is a sucker born every minute?”

    • Ira Says:

      Circus king PT Barnum said that, in case you really didn’t know and weren’t being facetious.

      WC Fields said, “Never give a sucker an even break.”

  8. Getashrink Says:

    “To begin with, what is the fixation with bonds? Why can’t people trade Bolivars for US Dollars, Euros, or Yuans?”
    ————–

    Who is gonna feed Sicad 2 with dollars? No one in his right mind is gonna sell dollars within this new system at a much lower rate than the black market one. So, any dollars exchanged will have to be offered by the government. Do they have much to offer? It doesn’t look like it, thus they will use bonds.

    Having said that, I don’t think there are many bonds out there either for them to use. Will they issue new debt so that there are more bonds in the market? That’s the question.

  9. Island Canuck Says:

    Can someone answer this?

    So I open a bank account here in Venezuela in US$.
    I go to my baqnk & say I need $4,000 for my vacation trip to Florida because the government eliminated my Cadivi cupo.
    They put in a “bid” for me @ Bs.x & I “win” the bid.
    I assume that this would be for the face value of the bonds, not the trading value in the world markets.

    The what happens??
    If I receive bonds who buys them – the bank?
    And at what price?
    How do I know how many dollars I’ll receive & at what price?

    Assuming the bank will buy the bonds & put the amount in US$ in my account how do I get the money out?
    In cash? Will the banks have the amounts of cash necessary?

    All very strange.
    I don’t see this as being a viable alternative.

    If I could walk into a bank or exchange house & just buy US$ for a quoted Bs. price like the old days then I can see this working. Ohterwise it’s just way too complicated & risky.
    And I don’t see the government being that flexible.

    • Island Canuck Says:

      It has just been confirmed that you don’t need an account in US$ inside Venezuela.
      An external account will work.

  10. boisbrule Says:

    OT Question – I have 2 friends in Venezuela that have worked turnarounds at the refineries for many years, very experienced mechanics. They have not worked in 2 years and asked if I could borrow them money to help them through this tough time. What is the safest way to send them money from the U.S.?

    • Ira Says:

      “Lend” them money. You “lend,” they “borrow.”

      And I have the same exact question.

      It seems that the only 100% SAFE way is to get the cash, the plata, directly in their hands.

    • Alexis Says:

      I know various people who just receive transfers in their U.S. bank account, and deposit the bolivars to whatever account. Ask your two friends to find such a trusted contact. By sending small amounts frequently, the risk remains pretty low.

      Another option would be to send the money to Colombia by Western Union or the equivalent, have them pick up the pesos and exchange them at the border.

      • boisbrule Says:

        @Ira – u r right “lend”. My 2 friends will try their hardest to repay me, but I don’t expect they will be able to facing the situation the country faces, and that’s OK with me.
        @Alexis – thanks for the very good advise, I’ll go the route of bank transfers.

  11. Virginia Laffitte Says:

    I would not trust one single solitary thing/idea they come up with!! They are l
    ignorant, liars, thieves and bullies..REALLY, Are you going to trust one iota at this point after all they are responsible for doing? Murder and mayhem, that’s all the know! Get Maduro OUT, and the Cubans with him!! MAYBE, just maybe
    Venezuela can recuperate the hell it’s endured for close to 20 years..Thing is, it will probably take another 20 to bring it back to civilization. For our children and grandchildren perhaps.

  12. xp Says:

    You’re back in the saddle again.
    Great reporting.
    People tend to forget that pdvsa is squeezed for funds.
    That supposed 5 bln from china was predicated on them
    legally absolving the brokers, force fx wide open,
    and tempt outside money back into the country.
    Once again, nice essay. We need here in more than ever :-) .

    rubegoldberg?

  13. NET Says:

    Miguel, the opaque Sicad II rate has been hinted at being “intervened” by the BCV so that it wont go too high and embarass the Govt–i.e., your guess in a previous Blog post of 20 or so could well be right. The opaqueness, coupled with limited $ to offer, will guarantee favoritism of Govt. buddies/favorites as $ recipients. Those individuals lucky/enchufado enough to receive $ will probably have their funds safe for awhile until/if the Govt. becomes really strapped, say by a plunge in oil prices, when the Govt. would then take all bank deposits above a minimal level for themselves, as happened in Cuba years ago, when $ deposits were legal for a time, and their Govt. took everything above $ !M overnight. There was an announcement by Ramirez of a 6-month “suspension” of Cadivi, which, if effected (I doubt), could add some fuel to the cash-starved Sicad II market. The parallel market could suffer some additional erosion short-term, but the coming future Bs. liquidity explosion from May 1 minimum wage/pensiones/Mision increases will propel the market upward, as will Sicad.I/II Bs. when they’re thrown into the economy by BCV/PDVSA.

  14. VJ Says:

    Four people shot to death today 03/12/2014, in Valencia, Carabobo state.
    Jesús Enrique Acosta (23) student shot in the head.
    Ernesto Bravo Bracho, GNB captain, shot in the chest.
    Guillermo Sánchez (42), shot and killed by motorizados.
    A child, 6 years old, shot in the chest.

    http://www.notitarde.com/Valencia/Un-estudiante-un-adulto-y-una-nina-de-6-anos-asesinados-en-La-Isabelica-tras-manifestaciones-de-este-miercoles/2014/03/12/313471

    http://www.notitarde.com/Valencia

  15. syd Says:

    One comment, one question, Miguel:
    First time I am rooting for a Chavista prediction!
    LOL

    If there is so little information on the nuts and bolts of this Sicad 2 announcement, why does BofA pronounce the move as the “right” one for the VZ economy?

    • moctavio Says:

      Because he has always been rooting for the revolution. It is indeed a positive, a move in the right direction, but I think it is less than it shows and will fail anyway.

    • syd Says:

      yes, I know Dieterich has always rooted for the revolution. The LOL was for the way you put it.

      As for BofA’s accolade prior to receipt of full information/proper analysis, that is professional irresponsibility that smacks of a propaganda quid pro quo.

  16. VJ Says:

    The two faces of Dilma Rousseff.

  17. Auuuuuvienelobo Says:

    Con los guarimberos, como si, les gustara destruir!

    Que hagan!

  18. Auuuuuvienelobo Says:

    Ahora Viene el pueblo Brasileño! regímenes, no queda!

  19. Auuuuuvienelobo Says:

    Una pila al revez

  20. Kepler Says:

    Ccs, its very simply: Germany and Japan invaded dozens of other countries and killed millions of people in the process. Both countries attack all the structure of those countries and threatened to do the same with other countries.
    So: it was clear the US, Britain and the Soviet Union, apart from many other countries, would do anything they could to destroy the regimes in place in both Germany and Japan.

    Syria’s regime is even slaughtering many many thousands of people every month and so far nothing like that is happening.


  21. […] chavismo will be free from caveats and bureaucratic distortions (see M. Octavio, a Caracas trader, on SICAD 2 complex and non-transparent details.) Still, at the minimum, this amounts to a significant de facto devaluation of the bolivar.  As […]


  22. […] is ever free from caveats and bureaucratic distortions.  See M. Octavio, a Caracas trader, on the complex and non-transparent details of Sicad 2.  Still, at the minimum, this amounts to a significant de facto devaluation of the bolivar. As […]

  23. Mumra Says:

    This comment actually has to do with the last post. I noticed that in the Photo of Maduro trying to explain away the collapse of the money exchange system that both photo’s in the background are of Bolivar. Is he trying to get away from Chavez? Last year, it would have been one picture of Bolivar and one of Chavez – now it’s just the sainted ancestor of the still jailed Leopoldo Lopez. What happened?


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