Ten Questions to the Board of the Venezuelan Central Bank

March 2, 2011

Two years ago, I wrote a careful post on the health of the Venezuelan Central Bank entitled: Central Bank Musings: Printing Money and going bankrupt. I spent a few days working on it because I wanted to explain to the non-expert what the balance sheet of a Central Bank looks like. I remember this quite well, because I was sitting on another story, the Stanford Bank story, as Alex Dalmady had written his now famous “Duck tales”, but I kept putting it off to devote time to my Central Bank post which barely generated a beep, while the Stanford story was one of the biggest ones ever covered by this blog. But the story of the financial state of the Venezuelan Central Bank, may one day be bigger.

Some of you may want to look back at that post now, because things are much worse than they were then. That is why a group of 26 Economists a week ago published this open letter to the Board of the Venezuelan Central Bank (BCV), asking ten very simple questions:

1.- Can you explain how it is possible that an asset that has been transferred from the BCV to Development Fund (Fonden), in this case US$ 39 billion in international reserves, continues to be reflected simultaneously in the balance sheet of both the BCV and Fonden as an asset? Is this consistent with the generally accepted  accounting rules?

2.- Could you make public the detailed methodology in the calculation of what you call “an adequate level of international reserves”?

3.- Why is it that the BCV has stopped publishing, for more than a year now, the table with the monetary base according to its different sources, where one would be able to appreciate the main factors of primary money creation by the BCV?

4.- Since 2004, there has been an item in the equity of the BCV denominated “adequate level of international reserves” which subtracts Bs. 9.186 billion (US$ 2.136 billion) to the overall equity. At the close of December 31st. there is in the assets of the BCV an account denominated “diverse assets in national currency” (Note 12 in the balance sheet) under the concept “adequate level of reserves” for Bs. 61.155 billion (US$ 14.222 billion). Shouldn’t this account be subtracted from the equity of the BCV in order to be coherent?

5.- Article 5 of the Central Bank law establishes that “the fundamental objective of the Venezuelan Central Bank is to achieve price stability and preserve the value of the currency”. Since the primary obligation of the BCV is the control of inflation, how do you explain that we have the world’s highest level of inflation?

6.- Can you explain why the backing of monetary issuance (International Reserves/M2) has deteriorated by 111%? Such backing was US$ 0.10 for each Bolivar in 2010, when in 1999 it was US$ 1.21 for each Bs.

7.- On July 20th. 2005, the account “Funds transferred to Fonden” was created in the amount of Bs. 12.453 billion (US$ 2.896 billion), which according to Note 11 of the balance sheet of the BCV had to be amortized by creating voluntary reserves. Why is it that after five years, this has yet to be amortized?

8.- What is the  content of of the item “Diverse assets in national currency”, noted in Note 12 of the balance sheet of the BCV? What are these so called financial instruments in the amount of Bs. 15.05 billion (US$ 3.5 billion)?

9.- What was the economic cost of the monetary reconversion?

10.- What have been the benefits to the citizens of the creation of the strong Bolivar, since its introduction on January 1st. 2008?

The country demands sincere answers

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27 Responses to “Ten Questions to the Board of the Venezuelan Central Bank”


  1. No auditors, they would question too many things.

    At least Ron believed in her revolution.

  2. Ira Says:

    Was Ron the woman who Chavez supposedly arrested, to placate the critics. for the attack on Globvision? (Or was it a newspaper?)

    Even though she was a rabid Chavista and was simply doing his bidding at the time?

    And if so, what has been going on with her judicial process until now:

    But I guess you have to pretend that actual, legal, judicial processes still exist in VZ to answer my question.

  3. Roy Says:

    Lina Ron:

    I won’t rejoice. I suppose even she had family an friends. But, I certainly will not mourn her. Her legacy is hate and intolerance.

  4. megaescualidus Says:

    Ron is no more

  5. Halfempty Says:

    Brb, off to buy a 36 ounce Louisvile Slugger, lathe and sledgehammer.

    Don’t start without me.

  6. Halfempty Says:

    I am disgusted with myself for my smile at this news. My it’s memory ever be a blessing to it’s family.

  7. island canuck Says:

    If anyone isn’t aware Lina Ron, a disgusting example of humanity, has died of a supposed heart attack.

  8. DBP Says:

    …..and the auditors were ?

  9. DBP Says:

    The auditors were ???????????

  10. m_astera Says:

    As Alex D said “If you require an exact numerical response, the answer is 42″

    Six times seven. See Douglas Adams’ “Hitchhiker’s Guide to the Galaxy” for details. No, not kidding. Or only sortof.

    Now, who has benefited from the devaluation of the B? Those reading this blog who had money to play with,and the Venezuelan gov’t and those who are feeders on it. The campesinos, the trabajaderos, have not. For the last three days they have been lining up to buy dried milk and cooking oil. limit 2 per person, at the local Central because it was finally there to buy.

  11. A_Antonio Says:

    It is good a post iabout Rubén González case. This represents a case of injustice and perversion of the judicial system. Injustice in the sentence and the procedure to put him in “conditional freedom” represent a perversion that shows who really is the boss in the judicial system in Venezuela.

  12. Vitor Says:

    There isn’t a single central bank in the world that isn’t filled with positivist economists who think they can central plan a big part of society.

    Any institution dedicated to central planning suffer from the pretense (and lack) of knowledge.

  13. tleon Says:

    With respect to the peoples uprising for freedom in other parts of the world; it makes one wonder how much stolen money Chevez and his thugs have transfered from banks in the EU and Swiss accounts to Cuba.

    Chevez may be an evil SOB but he is not stupid, he sees what happens to funds stolen from the people when they get kicked out or up risings begin.

    For that matter how much has been transfered directly to the Castro brother accounts. By all means Chevez has to keep them happy.

  14. Roy Says:

    Maria Machada asks Giordani her questions in the AN:

    It won’t have any more effect on the Regime than the group of economists’ questions, but it is more fun to watch.

  15. Kepler Says:

    Miguel,
    They have to send it with the following:

    “copy goes to A, B, C, D, E…etc” and also copy to PJ/UNT/Causa R

    Que sepa cada uno quién recibe esto.

  16. island canuck Says:

    Well said Bloody Mary.

    We always seem to be living in smoke here.
    Nothing is clear.

  17. Bloody Mary Says:

    Considering the oil prices, all the services crises, and the upcoming presidential elections, it can be predicted an even worse irresponsible management of the money within the near future (so you are right, there will be more and more material for the Devil’s scrutiny)….. Why can just save a little?… use the money with a minimum of vision about the future? …. I would prefer a real dictator (than a populist)…. at least real dictators are not thinking about elections all the time, and are a little bit more worry about how the history will judge them.

  18. Alex Dalmady Says:

    BCV replies:

    “The answer to questions 1-10 is: Quack”

    “You can refer any further questions to our auditor. Oh wait, we don’t have one!”.

    “If you require an exact numerical response, the answer is 42”

  19. moctavio Says:

    Something is being prepared to send to international organizations.

  20. A_Antonio Says:

    I agree with Kepler’s comment, I would like to add that the questions should be written in 3 years old child language so Chavistas understand you.

  21. An Interested Observer Says:

    1. Of course not. But if we don’t each count it as assets, we have to admit we’re bankrupt.
    2. When Hugo wants a millardito or two (or ten), levels are adequate.
    3. Because inflation is a monetary phenomenon, but we don’t want to give people evidence to disprove all of our other bogus theories.
    4. See #1. Different problem, same reason.
    5. And the Constitution is the highest law in the land, but subject to the higher power of “the will of the people.” You know how that works.
    6. Sorry, can’t hear you over the noise of the money printing machines.
    7. Because “voluntary” means “if able to when also complying with all the demands of Hugo.” After all that, we’re not able.
    8. If we told you, we’d have to kill you.
    9. Even if we could calculate that, do you think we would? Besides, that’s just the cost of creating a socialist utopia. Are we there yet?
    10. Easier math (which also means less pressure to invest in education – bonus!).

    Frankly, this is scary stuff. In addition to all the crazy debts that will have to be paid off post-Chavez, and the amount of money it will take to rebuild the economy, I can’t even guess how long it will take to turn the BCV back into a solvent, stable institution. I’ve got a feeling that alone will drive the value of the Bolivar down quite a bit.

  22. Kepler Says:

    Miguel,

    The regime won’t answer like that, but we can get their attention. If people send that letter as an open mail to El País, CNN Spanish, The Economist (specially that), El Universal (Mexico), O Globo (Brazil), they are going to become nervous. It just takes a minute, collect the emails of them all and put that as open cc with copy to the government.
    You can also put an email that goes to every faculty of economics in Venezuela (UCV, UC, ULA, etc)

  23. moctavio Says:

    I am writing an article about him.

  24. island canuck Says:

    Off Topic:

    Nobody seems to be talking much about the 7 year sentence of the union leader Rubén González.

    What is the real story there? Does anyone know the details?

  25. island canuck Says:

    You won’t hear any answers. As long as the VTV crowd isn’t asking then there is no need to comment. They won’t ask as, has been pointed out, they don’t understand any of this.

    He could care less what we think.

  26. A_Antonio Says:

    I agree 100% with Karl, the only exception not agreeing in his comment is that Karl understands more XXI century socialism than Chavez, a Nothing Empty Vacuum about good sense economy.

  27. karl Says:

    Well Miguel, you should know better than that. Explaining those details is not in their job description, hell, I don’t think the majority of the board understands the items you just listed.
    Their only function is to DO whatever the supreme commander of the revolution says, never mind that Chavez’ understands of economy less than what I do of XXI century socialism. Now that I think about it, there is nothing to know about that nonsense.


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