The Devil's Excrement

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 banks 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!

This entry was posted on October 4, 2005 at 7:43 pm and is filed under Venezuela.