Caracas, Venezuela, October 1, 2005—Venezuela’s President Chavez announced yesterday, during his trip to Brazil, that Venezuela has sold its foreign currency reserves, which were held in U.S. treasury bonds, and deposited them in banks in Europe. “We have had to withdraw our international reserves from U.S. banks, due to the threats we have,” said Chavez, according to the Associated Press.
Chavez went on to say that his government is interested in depositing a part of its reserves in Latin America. “Just as we moved them to Europe, we can move them to a South American bank. By god, don’t tell me that’s impossible,” said Chavez.
Chavez made the comments in the context of a summit of South American leaders, which took place in the Brazil’s capital of Brasilia.
In the course of the meeting, which leaders from Chile, Bolivia, Peru, Paraguay, Ecuador, Venezuela, Brazil and Argentina attended, Chavez proposed that they should all consider depositing a part of their foreign currency reserves in a newly created South American development bank. Venezuela would be willing to launch such a bank with an initial deposit of $5 billion.
According to Chavez, such a South American development bank could eventually include countries from Asia and Africa, to become a world bank. “It is a stupidity that a majority of our international reserves are in banks of the North,” said Chavez to the gathered leaders.
Recently, Venezuela’s National Assembly changed the country’s central bank law, so that “excess” foreign reserves can be used for repayment of Venezuela’s foreign debt or for purchases abroad. The Central Bank is to calculate how much foreign reserves Venezuela ought to have and reserves in excess of this amount would be transferred to a special development fund. Until recently, the Venezuelan Central Bank held $32 billion, of which $2 billion have already been transferred to the development fund. Chavez says that the ideal foreign reserve level is $25 billion, which means that the government could have access to another $5 billion.
Venezuela’s foreign reserves have reached historical heights in the year because of the combination of high oil revenues and currency controls, which largely function to keep the revenue in the country.