The Bolivian Central Bank is selling dollars directly to the public in order to curb speculative attacks that have increased public demand for foreign currency. This increased demand has been driven by several factors that have led the public to believe that a devaluation might be in the works.
Bolivia’s central bank sells dollars to appease the local market
The Bolivian Central Bank is taking extraordinary measures to supply foreign currency to the domestic market: on March 6, the financial institutionannounced it would begin selling dollars directly to citizens, adding its actions to the established traditional currency exchange market.
The measure is in response to what the central bank calls a “speculative attack” on the national monetary system, urging Bolivian citizens to buy more dollars to protect themselves from a rumored exchange rate appreciation. Bolivian Central Bank Governor Edwin Rojas said.
The Bolivian Central Bank is opening its doors through Banco Union. Banco Union is the institution that will work with us in this process, because those who demand dollars and do not have access to them (outside) can come to us to fulfill their needs.
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The increased demand for dollars that central banks are facing has to do with concerns about the current state of national reserves and how this triggers changes in the exchange rate of the US dollar.
Bolivia has afixedexchange rate set in 2011, where a dollar is valued at 6.86 Bolivian, the country’s fiat currency. In countries with established foreign currency exchange controls, such as Venezuela and Argentina, this restriction has led to devaluation and high inflation.
On March 9, Rojas gave asummaryof the market reaction to the measure, noting that more than $91 million has been allocated in the past two weeks to meet unprecedented demand. He explained that the country has no plans to change its monetary policy.
However, analysts are uncertain about the sustainability of these moves. The last report on the status of foreign exchange reserves came on February 8, when the central bank reported holding $372 million. This is below the $400 million inAntonio Saravia. A local economist estimated that the domestic market needs monthly funding. He doubts the government can sustain this level of intervention for long.
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