Venezuela provides more euros than bolivars to its own banks

Instead of bolivars Provided Venezuela's central bank is increasingly supplying euro banknotes to its own banking sector. As a result, the euro will have an increasing share of domestic payments, at the expense of the virtually worthless bolivar. Since mid-October, the big banks in Venezuela have been receiving €1 million in cash every week and small banks €500,000 a week. That's twice as much as before. The banks distribute that money to companies so that they can pay their suppliers and staff.

Venezuela's economy has almost come to a standstill due to hyperinflation. The bolivar has become virtually worthless in a few years, causing the population and the banks to look for alternatives. In the past, the US dollar usually took over the function of the national currency, but now the euro is preferred. If Venezuela's central bank continues to pump euros into the economy at this rate, the euro will take over the role of the bolivar as the most widely used means of payment within a few months. This is despite the fact that payment in foreign currency was still prohibited in Venezuela until mid-2018.

Sanctions and euros

Venezuela fell into crisis in 2014 as the price of oil plummeted, halving revenues and making it unable to afford imports of goods. The situation was further exacerbated by U.S. sanctions, which restricted access to dollars. As a result, the country can no longer borrow in dollars and can no longer do business with American banks. The government in Washington also imposed restrictions on the export of oil and gold, Venezuela's main sources of income.

An alternative to the lack of U.S. dollars was soon found. Earlier this year, for example, oil company PDVSA started paying for its oil in euros. As a result, more and more euros entered the Venezuelan economy. Also, Russia millions in banknotes by plane to Venezuela, a significant part of which is in euros. These cash transports are likely to be financed by the sale of gold, although that has not been officially confirmed.

It is clear that the US sanctions have not had the desired effect and that Venezuela has not been isolated by support from Russia and China and the euro is the big winner.

This contribution comes from Geotrendlines