Letters of credit (L/Cs) will no longer need to be put up by participants in Venezuela's redesigned auction-based currency exchange system.

The changes to the system are aimed at reducing imported product shortages, but the measures will weaken the Venezuelan currency and are likely to spur already soaring inflation.

System changes

Venezuela has revamped its currency exchange system to boost the flow of US dollars into the economy and encourage import flows.

As well as eliminating L/Cs, changes to the system include expanding the number of people who can access the system and providing hard currency directly to importers rather than to their offshore providers.

Devaluation

Other changes to the auction-based foreign exchange system, which operates in parallel with a currency control mechanism, will include holding at least two US dollar auctions per month.

But the move will further devalue the local currency, because the system will provide US dollars at a weaker rate than the official exchange rate of 6.3 bolivars per US dollar.

This further weakening of the currency follows a devaluation in February, which helped push annualised inflation above 35 per cent.

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