CARACAS—Venezuela plans to transfer billions of dollars in cash reserves from abroad to banks in Russia, China and Brazil and tons of gold from European banks to its central bank vaults, according to documents reviewed Tuesday by The Wall Street Journal.
The planned moves would include transferring $6.3 billion in cash reserves, most of which Venezuela now keeps in banks such as the Bank for International Settlements in Basel, Switzerland, and Barclays Bank in London to unnamed Russian, Chinese and Brazilian banks, one document said.
Venezuela also plans to move 211 tons of gold it keeps abroad and values at $11 billion to the vaults of the Venezuelan Central Bank in Caracas where the government keeps its remaining 154 tons of bullion, the document says.
Venezuelan officials were tight-lipped. Representatives of the ministry of finance and the central bank said there was no official comment, and no one was authorized to address the issue.
Lately, senior Venezuelan officials have criticized Venezuela's dependence on the dollar. Last Saturday, Venezuelan Foreign Minister Nicolas Maduro said the world's financial system, based on the dollar, "had entered into a crisis of uncertainty and we are planning to construct a new international monetary system, and especially in South America, protect ourselves from this situation," he said.
The Bank of England recently received a request from the Venezuelan government about transferring the 99 tons of gold Venezuela holds in the bank back to Venezuela, said a person familiar with the matter. A spokesman from the Bank of England declined to comment whether Venezuela had any gold on deposit at the bank.
A spokesman for the Bank for International Settlements where Venezuela keeps $3.7 billion of its cash reserves, and 11.2 tons of gold, Venezuela values at $544 million, according to the document, also declined to comment.
Analysts said the planned move made little economic or financial sense, since Venezuela would be taking its money out of secure banks in safe countries and putting it in countries that are not as safe and perhaps in currencies such as the Chinese yuan or the Russian ruble, which are not reserve currencies. "It's a big risk," said José Guerra, a former official at Venezuela's central bank. Mr. Guerra said he also had heard about the documents whose authenticity was confirmed to him by Central Bank officials.
Mr. Guerra said one possible reason for the planned moves could be that Venezuela is afraid it could be compelled to pay billions of dollars in compensations to foreign companies that have gone to court to recover damages for companies Venezuelan President Hugo Chávez has nationalized. Another reason could be that China may have asked for collateral for billions of dollars it has loaned Venezuela, Mr. Guerra said.
Venezuela faces a sizable bill from arbitration but it's difficult to pin down a reliable estimate.
Tamara Herrera, chief economist of Síntesis Financiera, an economic consulting firm based in Caracas says about Venezuela's nationalization problems.
"It's a wide range from $10 billion to $40 billion and beyond. There are many ongoing negotiations; the major ones of course are with oil companies."
One of the documents outlining the moves appears to have been drafted by Jorge Giordani, Venezuela's planning and finance minister, in conjunction with Nelson Merentes, the central bank president, for Mr. Chávez's approval. It calls for the transfer of the cash and gold reserves as of Aug. 8 in a maximum of two months.
Another document prepared by Foreign Minister Nicolas Maduro for Mr. Chávez's approval calls for Messrs. Giordani and Merentes to prepare a plan to safeguard Venezuela's international reserves given "the recent U.S. debt crisis and its impact on the dollar as a world reserve currency."
The crisis, the document says, "has lit all the alarm signals as to whether it's convenient to maintain our reserves in that currency [U.S.dollar]."
The document also notes that "the powers of the North" have "pillaged" Libya's international reserves as a result of the sanctions applied to Libya.
"That makes us reflect on the need to elaborate a plan to monitor and secure the funds that the Republic maintains in international banks to meet its commitments abroad."
For some analysts, the reference to Libya signaled a possible political motive. The charismatic Mr. Chávez, who has said he will run again for president next year's elections, is being treated with chemotherapy for cancer in Cuba. Neither Mr. Chávez's type of cancer nor Mr. Chávez's prognosis has been made public. Moving the reserves may signal that Mr. Chávez and his associates could be preparing some drastic political moves—such as canceling elections—that could incur international condemnation and perhaps trigger sanctions.
Roger Noriega, a former high-ranking state department official during the Bush administration.
"It doesn't augur well for Venezuela."
Opposition congressman Julio Montoya said he received leaked "secretive" copies of the proposal to relocate Venezuela's gold reserves deposited in the UK and Swiss banks to nations friendly with Venezuela from concerned officials of the finance ministry says.
"We don't know if (Chávez) has signed it."
Mr. Montoya said that the proposal raised the question if Venezuela was being pressured into transferring its gold reserves because of its growing ties with China and Russia.
- China - To fund the country's large-scale social programs, Mr. Chávez has turned to resource-hungry China, Venezuela's largest creditori recent years, for assistance on everything from financing to housing and machinery. Last year, Venezuela received a $20 billion credit line from the China Development Bank for housing, which it is paying back with oil shipments.
- Russia - Rusia has been a major arms supplier to the South American nation, supplying it with small arms, ammunition, tanks, armored personnel vehicles and combat jet aircraft
Most recently, Venezuela announced it was finalizing agreements for two additional credit lines of $4 billion each with Russia and China, with a portion of the Russian funds earmarked for the Venezuelan military. Venezuelan officials have also said they have recently reached an agreement with Brazil for a $4 billion line of credit.
COMMENTARY: It's a well known fact that China, Russia, Iran and Venezuela, nations that are not considered very friendly towards the U.S. or The West for that matter, have pressed their case before the World Bank and International Monetary Fund to replace the U.S. dollar as the world's reserve currency. Developing countries like China, Brazil and India in particular view themselves as future economic powers.
The World Bank, in a report titled, "Gobal Development Horizons 2011--Multipolarity: The New Global Economy", projects that by 2025, six major emerging economies—Brazil, China, India, Indonesia, South Korea, and Russia—will account for more than half of all global growth, and the international monetary system will likely no longer be dominated by a single currency (U.S. dollar). As economic power shifts, these successful economies will help drive growth in lower income countries through cross-border commercial and financial transactions.
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The report projects that as a group, emerging economies will grow on average by 4.7 percent a year between 2011 and 2025. Advanced economies, meanwhile, are forecast to grow by 2.3 percent over the same period, yet will remain prominent in the global economy, with the euro area, Japan, the United Kingdom, and the United States all playing a core role in fueling global growth.
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PricewaterhouseCoopers prepared a ranking of developed and developing nations by GDP between 2009 and 2050, and the U.S. drops from #1 in 2009 to #3 in 2050. During this period China and India rise from#2 and #4 respectively in 2009 to #1 and #2 respectively in 2050.
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In April 2011, the International Monetary Fund boldly predicted that China will overtake the U.S. in GDP (Purchasing Power Parity) by 2016.
The IMF is using what's known as "purchasing power parities," comparing what residents of both countries earn and spend domestically. Based on that comparison, China's economy will rise from $11.2 trillion in 2011 to $19 trillion in 2016. The U.S. economy will rise at a slower pace, from $15.2 trillion to $18.8 trillion in that period. According to MarketWatch, China's share of the global economy will hit 18 percent, while the United States' share will lag behind at 17.7 percent.
The World Bank and IMF have both been at loggerheads with the U.S. for sometime, and highly critical of the U.S.'s reckless financial investment practices that nearly brought the nation to the verge of financial collapse and triggering a worldwide recession, rising U.S. federal debt levels, loose central bank monetary policies (FRB'squantitative easing) and the effect on global interest rates because of the US's heavy borrowing to keep afloat. The threat of a debt rating reduction by S&P (S&) finally reduced U.S. credit from AAA to AA+ in August) and Moody's did not help matters any.
In February 10, 2011, the IMF announced a plan to replace the U.S. Dollar as the world reserve currency with Special Drawing Rights (SDRs). SDRs represent potential claims on the currencies of IMF members. They were created by the IMF in 1969 and can be converted into whatever currency a borrower requires at exchange rates based on a weighted basket of international currencies. The IMF typically lends countries funds denominated in SDRs
Emerging nations like China, Brazil, Russia and India, and oil rich nations in the Middle East and Iran see the eminse sovereign debt problems of the U.S., The EU, the UK and Japan, and are running scared and slowly hedging against the U.S. dollar and banding together to eventually replace the U.S. dollar as the world reserve currency.
Two years ago, China pushed the IMF to create a "super-sovereign reserve currency" which would turn the IMF into a world central bank. Does this mean that the SDR could become the new world reserve currency? BTW, the IMF has the world's third largest reserves of gold--3,101 tons worth $158.77 billion. All foreign currencies would be pegged against the SDR. Gold and the value of claims between nations, is what is going to back those IMF's super-sovereign reserve currency. The question is how much more gold will its 185-member nations be asked to pony up to establish that new world reserve currency. I am glad I am not an economist. Remarkably, U.S. Treasury Secretary Timothy Geitner is for a new world foreign currency.
My guess is that Hugo Chavez is protecting his gold reserves against sanctions, either legal or political, but it is also a hedge against the eventual replacement of the U.S. dollar as the world reserve currency.
Courtesy of an article dated August 17, 2011 appearing in The Wall Street Journal
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