Excess of bolivars doubles in the financial system
Central Bank of Venezuela is rearranging the scheme to absorb the liquidity
Last October, banks kept a monthly average of USD 8 billion over the compulsory amount to be deposited as escrow account in the Central Bank of Venezuela (BCV). At December 12, they had amassed USD 18.6 billion, a hike of 128%.
Banks place in credits or bonds the received deposits. However, the sum of money overtakes the pace of economy.
The surplus of local currency in domestic banks shows the extent to which liquidity has soared. This could bolster prices, as more bolivars for the same amount of goods mean inflation.
In order to withdraw bolivars from the economy and lessen the pressure, the BCV sells financial institutions bonds at an interest rate of 6-7%.
Hitherto, the BCV had kept a passive attitude allowing for overwhelming liquidity so that banks could fund the government with no problem.
Nevertheless, winds of change are blowing. Through Tuesday, November 11, financial institutions were not permitted to have BCV notes in their portfolios for an amount higher than the balance recorded on November 27, 2009. The BCV board eventually moved up the ceiling.
The BCV did not set a new cut-off date for the balance, but told large financial institutions that they could buy more bonds.
Sources explained that the BCV would make a phone call to each financial institution and apprise them of the new sum of money that may be spent in BCV notes from now on.
Besides buying BCV notes, financial institutions discourage the opening of bank accounts and buy bonds from public banks in an effort to contain the exceeding liquidity.
In the weekly sale of bonds and treasury notes at the Ministry of Finance, state-run banks are usually favored. Whenever they need profits, they resell a portion of the securities to private entities, eager to curb the surplus of bolivars.
This year, the Venezuelan government has used domestic banks, particularly public banks, as funding source to offset the expanding public spending during the past presidential election.
Banks hold in their portfolios state bonds for approximately USD 31 billion, that is, a 57% hike in 12 months.
Translated by Conchita Delgado
According to inner surveys performed by the Venezuelan Association of Metallurgical and Mining Industries (AIMM), where 160 metallurgic companies were taken into consideration, 90% of the companies members of this association are "distressed because of their existence or survival in the short term," stated Manuel Eseverri, president of this association.