Venezuela’s banks store millions in dollars and euros: Reuters

Some $1.8bn worth of foreign currency has entered Venezuela in the last year, according to three senior banking sources.

Venezuela''s Bolivar
The Venezuelan bolivar has been hit hard by hyperinflation and United States economic sanctions in recent years, which is why an increasing number of people are turning to foreign currencies to make transactions [Ivan Alvarado/Reuters]

At least half a dozen Venezuelan banks have begun using vaults to store millions of dollars and euros accumulated in cash by businesses during an unexpected economic liberalisation by President Nicolas Maduro, sources told Reuters News Agency.

Some $1.8bn worth of foreign currency has entered Venezuela in the last year, according to three senior banking sources, as Maduro quietly dismantles 16 years of socialist regulations to salvage the economy in the face of United States sanctions and hyperinflation. 

The cash comes mainly from remittances from the millions of Venezuelans who have left in recent years, and from OPEC member Venezuela’s oil and gold sales to allied nations such as Turkey and Russia. Money from remittances may enter Venezuela on trucks, while cash from the sale of goods may enter via aeroplanes.

The private banks’ new custodial service of storing the cash – which began discreetly in late 2019 and has not been previously reported in full – is further evidence of how the ruling Socialist Party is allowing financial arrangements that would be unthinkable for most Venezuelan citizens. Regular banking transactions in US dollars were outlawed in the Latin American country until 2018.

The new service is only offered to well-known firms with significant revenue and long-standing accounts, according to four finance-industry senior executives. “It is a service for traditional customers,” one executive said.

By storing cash that comes from established firms, banks avoid contact with companies that are linked to the government, which is under a broad sanctions programme by the administration of US President Donald Trump, who views Maduro’s government as an illegal dictatorship.

Sources who spoke to Reuters requested that the banks not be named for security reasons given the delicate context of their transactions.

Clients of the custodial service pay monthly commissions of one to two percent of the deposits – and in exchange for those commissions, get instant access to the cash and regular security checks.

The Venezuelan government, which does not discuss how dollars and euros enter the country’s economy, did not respond to a request for comment. Though it has stopped enforcing long-standing currency and price control regulations, many of the rules remain on the books, so the situation could change quickly.

Deteriorating notes

With the dollar increasingly being used in routine transactions in Venezuela instead of the devalued local bolivar – which only has the equivalent of $44m in circulation – the country’s pharmacies, grocery stores and other businesses are often flush with dollars.

Euros also enter the system from government payments to contractors.

Large supermarket chains like the custodial services because they carry out a third of their operations in foreign currency, according to two retail executives.

Transfers to same-bank clients cost one percent of the transfer amount. “The commission for storage of currency in bills is high because that money cannot be lent,” said Venezuelan economist Leonardo Buniak.

The high cost of the commissions helped triple their total revenue from 2018 to 2019, according to data from bank regulator Sudeban, making the commissions a major source of income while many other types of financing activity are declining.

Beyond the banks, foreign currency is stored and hidden in homespun ways. Some small-time merchants store dollars in wooden crates and move those crates quickly to pay off providers and reduce the possibility of theft.

“You have to leave hard currency under a mattress because of the cost of bank services,” said Vito Vinceslao, vice president of commerce association Consecomercio. “Many businesses have safe deposit boxes in homes or stores to protect them.”

Source: Reuters