• The Central Bank of Bolivia has decided to sell dollars directly to citizens in order to counter what it is calling a „speculative attack“ on the national monetary system.
• This decision came as a result of increased fear that the country may experience devaluation due to its decreasing foreign reserves.
• The Central Bank reported having $372 million in foreign currency reserves as of February 8th, 2021.
Central Bank of Bolivia Selling Dollars Directly to Citizens
The Central Bank of Bolivia has announced that it will start selling dollars directly to citizens in an effort to curb the rising demand for foreign currency caused by fears of devaluation and inflation. Edwin Rojas, president of the Central Bank, stated that this measure is being taken through Banco Unión in order to meet the population’s demand for dollars.
Fears of Devaluation
The increasing demand for dollars has been triggered by several factors which have led people to believe there might be a devaluation move coming. In Bolivia, there is a fixed exchange rate set back in 2011 which establishes each dollar is valued at 6.86 bolivians, the local fiat currency. Countries like Venezuela and Argentina which had established exchange controls on foreign currency have experienced heightened levels of devaluation and inflation due these restrictions.
On March 9th, President Rojas gave an update on how the market was reacting to this measure noting that more than $91 million was allocated during the last two weeks alone in order to satisfy unprecedented demand from citizens looking for dollars outside traditional markets. He also clarified that there are no plans currently for changing their monetary policy despite warnings from analysts about potential long-term issues with sustainability measures such as this one.
Foreign Currency Reserves
According to reports from February 8th, 2021, the nation’s foreign currency reserves totaled $372 million; however Antonio Saravia -a local economist- estimates that around $400 million would be needed in order for stability with regards to potential future changes in exchange rates or other economic fluctuations within the country.
In conclusion, while extraordinary measures such as direct dollar sales from government institutions may provide temporary relief from current worries related with devaluation; it remains unclear if these actions will provide any long term solutions without further policy reforms or changes being enacted by Bolivian authorities moving forward.