Troubled Venezuela Recovers Gold From Swap With Citigroup

Authored by Frank Knopers via Safehaven.com,

The central bank of Venezuela has paid $172 million to the American bank Citigroup to recover the gold it had swapped with the bank. According to Reuters, the precious metal was previously provided by the central bank as collateral for a dollar loan.

Venezuela has used a part of its gold supply in recent years to take out dollar loans from foreign banks, but due to the new American sanctions, U.S. banks are no longer allowed to carry out these swaps.

As a result, Venezuela had no other option than to end the currency swap with Citigroup and to return the gold.

The reversal of this currency swap shows that Venezuela still managed to get enough dollars to repay the loan.

“Citibank got paid,” said a local finance industry source familiar with the negotiation who asked not to be identified.

“The policy is to recover the gold,” added a second source consulted.

The country however is still in trouble, because the American sanctions made it almost impossible for companies and financial institutions in Venezuela to do business via American banks.

Crisis in Venezuela

Venezuela has ended up in a severe financial crisis due to a combination of low oil prices and a failed economic policy. The oil price has recovered to some extent, but the Latin American country is hardly benefiting from this. Due to the crisis, there was little investment in the oil industry, resulting in a decrease in oil production. This makes it even more difficult to restore the balance of payments.

Venezuela is strongly dependent on dollars for its imports, but due to the declining oil revenues, the flow of dollars became increasingly scarce. The problem was so bad that the central bank started to offer their gold as collateral to various banks, in exchange for dollar loans. The central bank made a similar deal with Deutsche Bank in order to get dollars from their gold hoard.

Due to the financial crisis in Venezuela, the gold reserves of the country declined by over 50 percent in a few years, from around 360 tonnes in 2014 to just 150 tonnes at the end of 2017.

The central bank had to use part of its gold supply to pay for imported goods.

Comments

MoreFreedom nope-1004 Wed, 06/06/2018 - 15:17 Permalink

" Of bigger concern is why would an American bank take gold as payment?"

The article states the gold was provided by Venezuela as collateral for a loan - it wasn't a payment. 

The better question is why are US banks doing deals with Venezuela.  At least the bank protected its shareholders by holding that gold as collateral.  An even better question, is why is the Federal Reserve buying "assets" from foreign banks, as well as US banks - assets that include mortgage backed securities.  And how do we know the offered price is based on the market values of the assets (in which case, why buy them?). 

 

 

In reply to by nope-1004

DonutBoy Offthebeach Wed, 06/06/2018 - 14:02 Permalink

That's true but there is a fundamental difference.  In a commodity-based system - when you hold the actual commodity you have no counter-party.  Anything else, be it silver certificate, ETF share, Comex future - you are holding a piece of paper that says you own some commodity that someone else is holding for you.  Sooner or later everyone gets the joke.  You'll be better off if you hold the actual commodity when that time comes.

In reply to by Offthebeach

dumluk marunovich Wed, 06/06/2018 - 15:26 Permalink

Thats a mute point cuz any Venez with any money has long since either been fleeced or got out and nobody left has any money except Maduro and a few high ranking  corrupt military and police leaders.....They cant even muster the money for a bus ticket to the border if there even still exists bus service....I dont think there is.......youd have to pay a trucker and the truckers truck and life are at stake.......

In reply to by marunovich

abgary1 Wed, 06/06/2018 - 15:10 Permalink

To anyone lending to Canada, remember they have zero gold reserves.

And they also have Socialists in governments at the Federal (Justine turdeau) and Provincial levels (Comrade Wynne until Thurs., Rachel Nutley, John Whoregan).