The Central Bank of Bolivia has responded to a surge in demand for foreign currency by directly selling dollars to citizens in an attempt to prevent a devaluation of the local currency. This spike in demand was reportedly caused by speculation of a possible devaluation move.
Bolivia’s Central Bank Supplies Internal Market with USD
The Central Bank of Bolivia has taken extraordinary steps to provide its internal market with foreign currency. On March 6, the financial institution declared that it would start selling dollars to the public, in addition to the already established traditional exchange market.
The measure is meant to counter the “speculative attack” on the national monetary system, which has caused many Bolivians to buy more dollars in order to protect themselves against potential changes to the exchange rate. Edwin Rojas, president of the Central Bank of Bolivia, commented:
The Central Bank of Bolivia opens its doors, we reiterate, through Banco Unión, since it is the body that is going to collaborate with us in this process so that the population that demands dollars and cannot get them (outside) can come to us to satisfy their demand.
Fear of Devaluation
The rise in demand for dollars is believed to be connected to apprehensions about the state of the national reserves, and how this could affect the exchange rate of the U.S. dollar.
In Bolivia, the value of the U.S. dollar is fixed at 6.86 bolivians, the national fiat currency, and has been since 2011. Countries like Venezuela and Argentina, which have imposed exchange controls on foreign currency, have experienced dramatic devaluation and inflation due to these restrictions.
On March 9, Rojas offered an update on the market’s response to the new measure, noting that more than $91 million had been allocated in the last two weeks to meet the unprecedented demand. He clarified that the country had no plans to change its monetary policy.
But analysts remain uncertain about the sustainability of this action. The most recent report on the status of the foreign currency reserves dates from February 8, when the central bank reported having $372 million. This is lower than the $400 million that Antonio Saravia, a local economist, estimates the national market needs monthly. He doubts the government can sustain this kind of intervention for much longer.
What do you think about the Central Bank of Bolivia’s efforts to address the high demand for U.S. dollars? Let us know in the comments section below
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