The restriction on free currency convertibility began to apply in Venezuela in 2003. The regulations extended for 15 years in the country banned the sale and purchase of foreign currency to private individuals, with the exception of the cases in which is used for certain authorized operations through the existing Exchange Agreements, regulations governing the foreign exchange operations.
The regulation has changed over time, moving from the establishment of a single official exchange rate to dual changes and other types of mechanisms through alternative forms of change determination. It should be noted that during a period of time the regulation of the process fell to the Foreign Exchange Administration Commission (Cadivi), which was subsequently replaced by the National Centre for Foreign Trade (Cencoex). Finally, with the measures recently adopted between the Central Bank of Venezuela (BCV) and the National Executive, they are responsible for the administration of foreign exchange at Dipro and Dicom exchange rates.
The foreign exchange law relating to the circulation, conversion and valuation of the currency originates in sub – legal acts that support the system of administration of foreign exchange held in: the compulsory sale of foreign exchange to the BCV derived from exports, services and technological supplies; and the system of sales of foreign exchange to those who request it, to private economic agents and private organizations that request it.
The change to the national currency to any foreign currency by any other means than the BCV and its authorized sources, such as banks established in Venezuela and registered, was subject to prosecution for criminal action and punishable by a fine equal to twice the amount obtained and by imprisonment from 3 to 7 years, as provided in the law on illicit exchange rates and the law on the exchange rate regime and its illicit. Similarly, exchange operations conducted outside the BCV were classified as” unofficial exchange rate use for pricing”, an act punishable by imprisonment from 7 to 12 years and a fine equivalent to 200 per cent of the difference between the exchange rate used in the illegal transaction and the official rate.
In all these processes, the final authorization for foreign exchange is issued by the governing administrative body, an institution that has the power and discretion to approve or disapprove the foreign exchange operation. Part of the sub-legal instruments that supported the foreign exchange administration regime between 2003 and 2014 were determined in the following Foreign Exchange Agreements:
- Exchange agreement Number 1: appeared on February 5, 2003 indicated the beginning of the stage of exchange control in Venezuela with a BS quotation. 1,600 for sale. The amount increased to BS 2,150 per dollar for sale in March 2005. Those interested in the acquisition of foreign exchange were required to provide all the data required on the Cadivi website, submit the application for registration and the necessary collections to the authorised banking operator.
- Exchange Agreement number 14: emerged on January 8, 2010 establishing a dual exchange rate calculated in Bs.F. 2,60 (Type I) and 4,30 (Type II) per dollar for sale. The Type I rate was assigned to the import of food, medicines and priority items for Social Security and welfare. The exchange rate II corresponded to the other sectors of the economy. In December 2010, the two rates were unified with Bs.F. 4.30 per dollar for sale.
- Exchange Agreement number 22: it appeared in July 2013 under the title “rules establishing the regime for the acquisition of foreign currency by the public sector”. Through this mechanism, the system of special auctions began to be established under the supplementary system of Foreign Exchange Administration (Sicad). The first auction to natural and legal persons was held in July 2013 for the amount of Bs.F. 11.30 per dollar for sale.
- Exchange Agreement number 25: appeared in January 2014 and this regulation removed from the Cadivi fee the rate resulting from the Sicad auction the exchange transactions related to: contracts of lease and services, use and exploitation of patents, trademarks, licenses and franchises, as well as the import of intangible goods; Public International Air Transport Service of passengers, cargo and Mail; international investment and royalty payments, use and exploitation of patents, trademarks, licences and franchises, as well as Technology Import and technical assistance contracts; and insurance operations.
- Exchange Agreement number 26: originated in February 2014 establishes that special currency auctions conducted at Sicad, would be managed and managed by Cencoex. The first average exchange rate for operations was Bs.F 11 per dollar for sale.
- Exchange Agreement number 27: it was established in March 2014 with the creation of the alternative foreign exchange system (Sicad II), through which a daily auction system was guaranteed with the participation of private and legal persons under public and private law. The last quote reached the Bs.F. 52.10 per dollar for sale.
- Exchange Agreement number 28: in April 2014, exchange houses are allowed to intervene in the Sicad II market through retail operations. In order to participate the exchange houses had to apply for authorization from the BCV and the ministry in charge of Finance.
- Exchange Agreement number 33: emerged in February 2015 under the name “rules governing foreign exchange transactions in the National Financial System” established the bases of the Marginal foreign exchange system (Simadi), whose exchange rate would be the result of the average of the transactions carried out. The first quote was at the Bs rate.F. 170 per dollar for sale.
The past August 2nd of 2018, the National Constituent Assembly agreed to the repeal of the illegal foreign exchange, after the publication of the Official Gazette number 41.452. The purpose of the decree is to encourage foreign exchange investments while facilitating exchange transactions between individuals, as well as participation in the country’s socio-economic model
Article 2 of the new regulation eliminates the punitive sanctions to those who perform acts of commerce in foreign exchange to determine, from the coming into force of the present Decree and Constituent without prejudice of the established in the article 3 ejusdem, repealing the Decree with Rank, Value and Force of Law of the Exchange Regime and its illicit; Article 138 of the decree with the rank, value and force of Law of the Central Bank of Venezuela with regard exclusively to the illicit one referred to the activity of negotiation and foreign exchange trade in the country, and all those normative provisions insofar as they are in line with the provisions of this constituent decree.” This measure could imply that the Venezuelan state is paving the way for a new economic model.
The following article contains the background to this derogation, as well as the legal guidelines for its interpretation.