Tag Archives: FX

The New Foreign Exchange Market at the Venezuelan Central Bank

Subject: The New Foreign Exchange Market at the Venezuelan Central Bank
Source: The Devil’s Excrement
Author: moctavio

According to the Venezuelan Central Bank, the new parallel market in which dollar bonds will be traded within a price band at that bank, will begin operating next week. In tune with the revolution, the system will be implement by that evil/capitalist/gringo company called Bloomberg. I doubt the new system will be in place before the end of next week, it is not only the platform that matters, but also the regulations which go from how to order at your bank, to how the band system will exactly work. Since brokers are banned from this, the banks have to train personnel, print forms and learn how to run the system. I think it will be at least another week before this is implemented and trading begins.

Which means that three weeks would have gone by without any access to foreign currency other than Cadivi, the foreign exchange control office. Since Cadivi is quite stingy, that means inventories are being drawn down fast and there will be accumulated demand in the parallel system when it opens. How much? Well, if the old, and now banned, swap system used to trade 80-100 million $ a day that means there will be 1.2 billion to 1.5 billion dollars ready to buy, not a small amount.

Thus, the question is who will supply this money to the buyers. Minister Giordani has said the Government will not do it, that the money will have to come from the US$ 40 billion in Pdvsa and Venezuela bonds that the Government has issued. Except that not only are these bonds largely in the hands of foreigners that want or need no Bolivars, but they are all trading below their face value, roughly at 65% of their face or nominal value on average, so what’s out there is less than US$ 26 billion in actual, real dollars, which is what matters to this fx market.

Chavez has threatened to force local banks to sell their bonds for Bolivars, Analysts estimate this is somewhere between 10 and 17 billion dollars, with the Government saying it is US$ 11 billion, but these numbers are guesstimates based on calculations of the limit on dollars that banks can hold, as established by the Government.

A much simpler and precise estimate is to look at how much banks had in Venezuela and PDVSA bonds as of Dec. 31st. last year, a number that should not have changed much since then. That tabulation gives a much lower number of at most US$ 5 billion in nominal or face value, which corresponds to a cash dollar value of only US$ 3.4 billion give or take one hundred million for each.

That is not much. In fact, that is barely the needs of the parallel market for five to six weeks, of which three have already gone by. Which means that even if the Government forces banks to sell their bonds for Bolivars it is barely a scratch on the surface and in two months, this new market will need a new source of funds or a different structure.

Which implies that problems will continue for the foreseeable future and the Government will, once again, have to improvise a “new, new” system before September.

Not pretty at all.


Read more…

CNBC.com Article: Euro Edges Up, but Still Vulnerable

CNBC.com Article: Euro Edges Up, but Still Vulnerable

The euro inched up on Monday, recouping small losses incurred after a cut to Spain’s debt rating, but the currency remained on the back foot as the downgrade highlighted ongoing structural weaknesses in the euro zone.

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At current prices, $10 million in gold … are 31.4 bars

…That fits into a suitcase. Granted, it’s too heavy to carry…

At current prices, $10 million in gold are 12,574 troy ounces.

If you have 400 oz bars, it takes 31.4 bars.

1 400 oz bar is 200mm x 80mm x 45mm

If you arrange the bars like six packs and stack 5 on top of one another, you can arrange 40 bars in the following space

200mm * 3 = 600 mm = 22. 62 inches length
80mm * 2 = 160 mm = 6.3 inches width
45mm * 5 = 225 mm = 8.9 inches height

( source for the dimensions of bars: http://www.taxfreegold.co.uk/goldbardimensions.html )

That fits into a suitcase. Granted, it’s too heavy to carry as these are 0.391 tonnes or 862 pounds.

While it makes gold less portable than diamonds, a car can easily carry such a load. Gold’s uniformity may be more important than a diamond that needs to rely on certificates.

If you can afford it, you may want to carry a stack of both – and don’t forget some gold coins as you are unlikely to get any change if fiat money is no longer accepted.

Best wishes,


Axel Merk
Manager of the Merk Hard Currency Fund, http://www.merkfund.com/
(650)323 4341