March 26, 2009 / 7:25 PM / 10 years ago

U.S. probe freezes Venezuela forex market: traders

CARACAS, March 26 (Reuters) - Venezuela’s parallel currency market was largely halted on Thursday after U.S. authorities froze a key bank account used for foreign exchange transactions as part of an investigation, traders told Reuters.

The government of leftist President Hugo Chavez fixes the bolivar currency at 2.15 per dollar through exchange controls but companies and investors routinely skirt them on a parallel market, where dollars now trade near 6 bolivars.

Sources said an “umbrella account” at a U.S. bank with various sub-accounts that are used for a large percentage of total parallel market transactions was frozen when authorities on Wednesday detected a suspicious operation.

Web sites routinely used to track the parallel rate, which is illegal to publish in Venezuela, showed the bid for dollars at 6 and the ask at 7 — a much broader spread than is traditionally seen on the market.

“Given the circumstances nobody is doing anything,” said one trader. “The market is totally paralyzed, that’s why the reference price is so high and and the spread so large.”

The rate on the parallel market, which is mostly unregulated and difficult to closely track, closed on Wednesday between 5.85 and 6.05 bolivars per dollar.

“A judicial order was issued to freeze the assets inside the account, which affects 49 brokerages and market operators in Venezuela,” said another trader.

The parallel rate is often seen as an indicator of political risk in Venezuela.

The rate soared in 2007 to nearly 7 before a referendum that would have extended Chavez’s powers, and also jumped last September after he expelled the U.S. envoy to Venezuela. (Reporting by Ana Isabel Martinez, Writing by Brian Ellsworth; Editing by Andrea Ricci)

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