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Central confusion Bank of Venezuela

By Miguel Octavio | The Devil's Excrement

05.10.05 | A very confusing situation surrounding international reserves. The same Central Bank Director that said on the weekend that the transfer of reserves to Europe and Euros had not been authorized by the Venezuelan Central Bank, now says in today's El Nacional that they were approved. To make matters even worse, he says that the reason was that the euro has been appreciating with respect to the US dollar, which has not been the case over the last few months. Since March the euro is down from a high of 1.37 to the UDS$ to about 1.19 today. He also says that they transferred US$ 20 billion, while Chavez says it was US$ 4 billion. Chavez said they converted into euros.

There are a number of things that contradict the reasons given. First of all, you don't need to change the funds into euros in order to transfer money to the Bank for International Settlements, a sort of Bank of Central Banks that can hold just about any currency in custody. Second, the US is a powerful influence in that Bank anyway, so if Chavez is really trying to keep the money at arms length, there is really not that much difference. After all, the bank's charter is to help maintain financial stability. Finally and more important, it makes little sense in terms of profitability as euro denominated bonds yield today less than similar US bonds. In terms of real numbers if US$ 20 billion were converted to euros, we are talking about the country losing between US$ 300-500 million.

It certainly would make sense to diversify the portfolio of the Central Bank, having a portfolio that represents the commerce of the country. That is, Venezuela should have a portfolio that reflects its international commerce so that currency fluctuations are essentially "neutral" over the course of the year. In addition to this one should take into account the yield so that the portfolio should be overweight US$ which have a higher yield.

But of course, given the lack of transparency in Venezuela these days, we really have no clue as to what is true or not. Why did Maza change his tune? Was he pressured? Was the money moved without the consent of the Central Bank? Why was the money converted to Euros if the only point was to take away from the US? Why was it deposited at the Bank for International Settlements if it was to keep it at arms lengths from the US? Why did Chávez announce it if Central Bank is independent? How much is in each currency?

We might never find out.

Note Added: Today the story changed once again and the funds were supposedly moved four months ago!

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