May 13, 2014 - Nicaragua seeks to de-dollarize economy
Nicaragua, one of the most unofficially dollarized economies in Latin America, is asking the International Monetary Fund (IMF) for help to strengthen its currency.
The córdoba, which has been pegged to the U.S. dollar since 1991, has essentially become a second-rate currency in it’s own country. Nicaragua’s Central Bank says 70% of all bank deposits and 90% of loans are made in U.S. dollars. Independent economist Néstor Avendaño estimates the córdoba now represents only 20% of the total liquidity of Nicaragua’s economy...
Surprised they did not try to tie it more closely to the Venezuelan Bolívar ;-))
You can fool some of the people all of the time and all of the people some of the time...


May 15, 2014 - Central Bank to un-dedollarize economy
A few days after floating the idea of de-dollarizing Nicaragua’s economy, the Central Bank has withdrawn its plan and publicly recognized the country’s preferential option for U.S. dollars.
“There is a strong preference for dollars in Nicaragua, and we can’t go against the current,” Central Bank president Ovidio Reyes said during a press conference on Wednesday, under the careful watch of IMF mission chief Przemek Gajdeczka...
But you can't fool all of the people all of the time!

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Reserve currencies

In Simon Black's Notes from the field for today, you can find an interesting chart. It shows what international reserves are held in.

While the US dollar has, until recently, continued to grow in quantity, it has continued to drop in percentage of international reserves. In 2001 it was about 75% (I am guessing by looking at the chart) whereas today it appears to be more like 35%. In fact, the total value of international reserves in Euros today is more than what US$s was in 2001. The percentage of unallocated reserves has also grown substantially meaning that some big players could elect to substantially change the game in favor of a particular currency.

That Crack About

paying out dollar bank accounts in Cordobas must have caught the eye of quite a few . . . shades of Venezuela.

Venezuela lost another airline. .. Venezuela's problem is not dollars vs Bolivars. It's Bolivars aren't worth the paper they are printed on. Inflation is supposed to be 60% this year. Who want's Bolivars when in a year they will be worth less than half of what they are worth today?

Certainly not Alitalia . . . .they voted with their feet -well, with their wings. I hope they got their planes out before Maduro recuperated them,

Couldn't they switch to that ALBA currency they were talking about, suckers? Or, maybe just use beans as currency. That country is an embarrassment. Could they hire some Nicaraguan economists to straighten things out? Or, start teaching everyone to swim.

It is about Dollars vs Bolivars

Venezuela’s 11-year-old currency control system and the problems airlines have in obtaining dollars in exchange for the bolivar currency is that under the Venezuelan system, monies collected in ticket sales have to be deposited into an account controlled by the government.

No funds can be withdrawn from the account without permission from the officials who control it.

Venezuela is holding US $3.8 Billion worth of payments.

Foreign exchange controls

That is exactly the problem. The internationalization of a country's currency offers a huge advantage. The US has enjoyed this advantage basically since it replaced the British Pound Sterling as something close to a world currency. The US dollar was at the top but that is changing.

First, when the Euro was introduced, it was on par with the US$ and actually dropped a bit lower (as I remember, about $.95) but is around $1.37 now. With the US playing footsie with Russia, things could get worse for the US$. (See http://a42.com/forum/pg/topicview/misc/financial-considerations/the-end-... for but one reason why.)

If you produce all you need, foreign exchange rates are not particularly important but clearly Venezuela does not (nor does the US). The disadvantage of not having your own currency is that you cannot manipulate its value to keep your economy on the path you want. This problem is easy to see in the EU where Germany's economy is doing very well while those of Spain, Italy, Greece, ... are not.

While we don't (yet) see currency controls in the US, there is a de facto control situation in that unlike the banks of many countries, Nicaragua included, US banks do not offer accounts in any currency except the US dollar. I am not sure if that is by law or just banksters playing games (Everbank offers CDs in foreign currencies but you have to buy them in US$ and when you sell them you get US$ back) to try to prevent another currency from replacing the US$ as the world reserve currency.

One of the interesting results is that a lot of US$ debt with China is being used to buy US real estate. That helps prop up the US real estate market but it isn't a good long-term plan.

Productivity vs currency manipulation

Submitted by fyl - If you produce all you need, foreign exchange rates are not particularly important but clearly Venezuela does not (nor does the US). The disadvantage of not having your own currency is that you cannot manipulate its value to keep your economy on the path you want.
If manipulating currency could put a country's economy on the path to paradise the FRB would have made the US king of the hill.
China, US, Nicaragua, and most others manipulate their currencies but productivity - GDP - is still gonna rule in the end game.
Look at all the gloom & doom forecasts for China - Probably overblown but the are starting to have real problems that the US faced a few years ago.

Nicaragua needs a whole lot more than currency manipulation to pull itself out of poverty paradise.

It can't

And I never suggested currency manipulation could. It simply gives you more short-term control. If you depend on foreign trade, changing the value of your currency allows you to adjust how well that foreign trade goes. For example, if there is a lot of international demand for BMWs, Germany (with their own currency) could increase the cost of BMWs for others.

If your country is primarily a player in the global economy, then GDP (in some standard currency -- currently the US dollar) is what matters. For most of the past 100 years, the FRB was rather successful in making the US king of the hill but there was clearly a call in 2008 and it seems unlikely pre-2008 faith will ever be restored.

China tried

and it worked as well for them (or maybe better) compared to the US for boosting their electronics exports (instead of BMWs.) but predictions are that they will suffer somewhat of a similar fate as the US.
The thread subject was Nicaragua & the córdoba - My point was that manipulation of the córdoba is not gonna help much - Nicaragua has very little GDP to export.
Until this county changes its culture, social system, and educational system 16 year old girls will continue to bring home a child to support and uneducated, unmotivated citizens will not become producers.
Maybe they are smarter than us - As long as one family member works they have rice & beans and seem to be pretty happy with what they have.

Venezuela Gets Paid In Dollars

for it's oil. Where do all the dollars go? I could suggest a destination, but why beat a dying horse? If everyone would just steal 10% less, there would be money for TP.

Then, they print Bolivars, backed by the good looks of Nicolas (either the current president of Venezuela, or my pig, take your choice, result is the same).

Euro was in the 80 + cent range for a while. I know this because I got paid in Euros for an IT job I did in Athens some years back. I invoiced in dollars, they paid in 85 cent Euros. My sole success as a currency trader.

The Venezuelan economy has been mis-managed for so long that it's possible it won't recover. If the US were to quit buying Venezuelan oil the country would devolve into chaos. Well, we need SOME for that big Hess refinery on St Croix.

It's interesting: The currency control scheme in Venezuela is a modern day Berlin wall. Venezuelans can leave (and many have), but you don't leave with your assets. Who wants Bolivars outside of Venezuela (Who wants Bolivars INSIDE Venezuela)?

A Thought

Do not cease to drink beer, to eat, to make love, and to celebrate life. Forget Venezuela.

— Egyptian Proverb -from NicaLiving

But, who cares? I'm beginning to lose interest . . . we're rolling into bug time in Nicaragua. Now's the time for a pre-emptive strike -before the rains start in earnest. I've got a new focus. Maduro is going to have to figure this out without my help.

For the first time, last year

Last year, Venezuela shipped more oil to Asia than it did to North America.