Venezuela pawns nearly $1 billion in gold reserves


By Blanca Vera Azaf
El Nacional, Caracas
Friday, April 24, 2015
(via Google Translator)

The Central Bank of Venezuela has pawned nearly $1 billion of its gold reserves, sources close to the central bank say. The swap operation, as it is called in the financial markets, was signed with the US bank Citibank, which was chosen from a group of five international organizations, which also aspired to structure this financial instrument.

Although details of the operation are unknown, experts have estimated that the US bank will charge a fee of between 6 and 7 percent for preparing the swap. The gold remains in the vaults of the Bank of England. But it would be taken as collateral in case the Central Bank of Venezuela does not pay on time the amount borrowed from Citibank.

It was thought that the swap's value would be $1.5 billion, but in the end a lower figure was achieved. The funds will be used to pay for imports, an unofficial source said.

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International firms have calculated that in 2015 the Venezuelan government's fiscal deficit could reach $25 billion. So far the government has chosen to cover part of this deficit by printing money without gold backing. This has caused an inflationary spiral that according to experts will put inflation in three digits.

Although the central bank did not formally announce the swap, information about it has filtered through international markets. This contributed to the rebound in oil prices in the world market.

On average, Venezuelan bonds rose between 3 and 4 percent, a percentage which is important considering that when a bond rises more than 1 percent in a day it is considered out of the ordinary.

Investors who have bonds of the republic or state oil company welcomed the swap, because they see the government closing its foreign exchange deficit, a source close to the financial sector said.

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