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Bolivia’s central bank is now selling dollars directly to citizens to curb what it calls a speculative attack that has increased the population’s demand for foreign currency. This increase in demand has been caused by several factors that led the population to believe that a devaluation movement may be coming.
Bolivia’s central bank is taking extraordinary measures to supply its internal market with foreign currency. On March 6, the monetary institution announced that it would begin selling dollars directly to citizens, adding the action to the established traditional foreign exchange market.
The move will counter what the central bank calls a “speculative attack” on the national monetary system, prompting Bolivians to buy more dollars to hedge against a rumored rise in the exchange rate. Edwin Rojas, President of the Central Bank of Bolivia, stated:
The Central Bank of Bolivia opens its doors, we repeat, through Banco Unión, since it is the body that will cooperate with us in this process so that the population that requires dollars and cannot get them (outside) can come to us to satisfy their demands .
The increased demand for dollars that the central bank is facing has to do with fears about the current state of the national reserves and how this could trigger a change in the exchange rate of the US dollar.
In Bolivia, there is a fixed exchange rate, set back in 2011, that establishes that each dollar is valued at 6.86 bolivianos, the country’s fiat currency. Countries such as Venezuela and Argentina, which had established exchange controls on foreign currency, have experienced elevated levels of devaluation and inflation due to these restrictions.
On March 9, Rojas provided a summary of how the market reacted to this measure, noting that more than $91 million was allocated in the past two weeks to satisfy the unprecedented demand. He explained that the country had no plans to change its monetary policy.
However, analysts are uncertain about the sustainability of these movements. The latest report on the status of foreign exchange reserves is from February 8, when the central bank reported having 372 million dollars. This is less than the $400 million that Antonio Saravia, a local economist, estimates the national market needs monthly. He doubts the government can sustain this level of intervention for too long.
What do you think about the situation that the central bank of Bolivia is facing with unprecedented demand for US dollars? Tell us in the comments section below
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