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Due to the economic crisis, Venezuela has to pledge part of its gold, writes Reuters. The country has only $15.4 billion in foreign exchange reserves, of which about 64% is made up of Gold bars. To make these reserves available, the central bank of Venezuela will enter into a gold swap with Deutsche Bank before the end of the year.
The gold swap means that Venezuela exchanges part of its gold reserve with Deutsche Bank for dollars for a certain period of time. It is not yet known how much gold is involved, Deutsche Bank and the central bank of Venezuela could not be reached for comment on Friday.
If Venezuela does not have enough dollars at the end of the term to settle the swap, Deutsche Bank will seize (part of) the gold. According to investors, this is quite likely, as trading in credit default swaps shows that 78% of traders expect Venezuela to enter the market next year. default Goes. In that case, the country may need to Selling gold.
Several sources told Reuters that Venezuela has carried out this type of gold swap more often in recent years, with maturities ranging from a week to a year. The central bank is also said to have carried out gold swaps with the Bank for international Settlements (BIS) in the past. But they would have stopped doing so last year, allegedly because they thought the swaps were too risky.
Under the rule of the late Hugo Chavez, the central bank's foreign exchange reserves were used to buy gold and finance social programs. Also, under his reign, a large part of the gold supply was withdrawn from London.
In London, the gold was easily tradeable, but Chavez was keen to bring the precious metal back into his own country. That now makes it a lot more difficult to set up gold swaps, because for that the gold has to be taken out of the country again.
Venezuela has run into serious problems due to a combination of mismanagement by the socialist government and a falling oil price. The country has a severe shortage of dollars and the value of its own currency is falling at a record pace. This week, Venezuela even flew in planes full of banknotes to meet the demand for cash. The IMF calculates inflation in Venezuela for this year at 720%.
