Venezuela's Battle for Gold Reaches New Phase

The battle for Venezuela's gold supply enters a new phase this week reached. The British Supreme Court is considering the question of who is the rightful owner of the gold. President Nicolas Maduro wants to sell the gold, but the British government does not recognize him as the legitimate president of Venezuela. That's why it remains under lock and key at the Bank of England.

Venezuela holds more than $1 billion in gold at the Bank of England in London. Maduro's government wants to sell that gold because it desperately needs the money. But the Bank of England is not cooperating, because the British government believes that opposition candidate Juan Guaido should be given control of the gold. Guaido lost the presidential election to incumbent President Maduro in early 2019, but several Western countries did not want to recognize this result.

Venezuela sells gold reserves

In recent years, Venezuela's central bank has already had to sell a large part of its gold reserves. For decades, the South American country had a gold reserve of more than 300 tons, but since 2015 part of the gold stock has been pledged and eventually sold. At the beginning of this year, only 86 tonnes remained, the lowest level in fifty years.

The economic crisis that Venezuela has fallen into in recent years started with a drop in the price of oil. As a result, the main source of income disappeared. Due to the government's poor economic policy, the country was unable to recover from this shock. This was followed by U.S. sanctions, which hampered the export of oil and gold.

With the disappearance of these main sources of income, confidence in the value of money also evaporated. The Venezuelan bolivar was Hyperinflation Completely worthless in a few years. As a result, the central bank had to sell more and more foreign exchange reserves and gold to pay for the import of goods.

Bank of England

Venezuela's central bank also tried to withdraw gold from London, but the Bank of England refused. A remarkable precedent, because the precious metal is owned by a sovereign country. That is why the central bank of Venezuela is trying to force the release of the gold through the courts.

Last year Lost They filed this lawsuit, but the central bank and the government did not accept it. Therefore, the case is now being referred to the Supreme Court in the United Kingdom. Maduro claims that the government needs the gold to fight the corona crisis, but the fact is that he already needed the gold before the corona pandemic broke out. The second argument he puts forward is that the British government still maintains diplomatic ties with Maduro's government. In doing so, the United Kingdom would implicitly recognize Maduro's presidency after all.

Political risk

As a result of this incident, more countries will question whether their gold is really safe with the Bank of England. Dozens of countries store part of their gold reserves in London, as it is an important hub for the international gold market. As a result, the gold held by the Bank of England is easy to trade. The downside of this is that a country no longer has full control over the gold.

This example of Venezuela shows that the Bank of England can also deny countries access to their gold reserves. For example, if countries do not conform to the will of the US government and are sanctioned. It is for this reason that more and more countries are repatriating their gold and storing most or even all of the gold reserves in their own country.

This contribution was made from Geotrendlines