Chavez signs new currency law against speculation

* Chavez says currency speculation is robbery

* Currency market awaits details of new rules

CARACAS, May 16 (BestGrowthStock) – Venezuela’s President Hugo
Chavez on Sunday signed a new foreign exchange law intended to
strengthen the bolivar currency, but critics say it will
backfire and hurt the economy.

The law will come into effect when it is published in the
government’s Official Gazette.

Details are still hazy, but Chavez said his finance
minister and the president of the central bank might hold a
press conference on Monday to explain the new system. Monday is
a bank holiday in Venezuela and markets are closed.

Chavez is also clamping down on illegal money changing,
with a series of raids and the arrest of one man who ran a
website listing the bolivar’s price.

He has threatened to close down all finance trading houses
and brokerages if they do not play by the rules.

“We have changed the law and started the raids,” Chavez
said. “It’s robbery. You take a dollar that is officially worth
2.6 or 4.3 and you sell it … at 8 or 10. It’s robbery and
everyone should report it,” he said on his weekly television
show.

The socialist leader, who has attracted over 300,000
followers on Twitter since he joined a few weeks ago, said
Venezuelans should report illegal dollar trading to him via the
micro-blogging service.

Under the new rules, the central bank will decide which
brokerages can participate in the foreign exchange market (Read more about international currency trading. ) where
the bolivar has until now been freely floated.

It is called the parallel market because it operates
alongside two fixed rates for the bolivar of 2.6 and 4.3 per
dollar — set by the government in a devaluation in January.

The 2.6 rate is for importing food and medicine and the 4.3
rate is for turning oil dollars into bolivars and for
importing items deemed non-essential.

Officials have said the central bank could be aiming to
create a floor and ceiling price for the bolivar in the
parallel market. Analysts say the band could be between 5-7
bolivars to the dollar.

Analysts have warned this strategy may backfire and create
a fourth, illegal market for dollars and possibly hasten
another devaluation by the government early next year. The
bolivar was devalued from an official rate of 2.15 in January.

Chavez’s threats to close down brokerages may be intended
as a warning to traders not to begin operating in a black
market if the central bank does not meet 100 percent of the
requests for exchange.

The bolivar’s woes are complicating a grim macroeconomic
environment for OPEC member Venezuela which, despite its oil
wealth, has rampant inflation and is expected to be the only
economy in Latin America to contract this year.

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(Reporting by Frank Jack Daniel; editing by Todd Eastham)
([email protected]; +58 212 277 2700; Reuters
Messaging: [email protected]))

Chavez signs new currency law against speculation