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October 11th 2005

Venezuela to diversify forex reserves

Venezuela can be officially added to the list of nations planning to diversify their foreign exchange reserves. Representatives from the country’s Central Bank said that $10 Billion would ultimately be exchanged for Euros, in order to better protect the country from a sudden decline in the USD. One has to wonder, however, if this move may also be motivated by political considerations, as Venezuela and the US have become bitter enemies in recent years.

As the price of oil rose, Venezuela’s oil exports increased in value. Because most of these export receipts were immediately reinvested in US government bonds, the nation accumulated massive foreign exchange holdings. This announcement underscores the risk that other major oil exporters, who have built up equally large holdings of USD, will also diversify. AFX News Limited reports:

If [Venezuela] were to move in line with the largest emerging market nations — which currently hold 40-45 pct of reserves in non-dollar currencies — it would imply a one-off sale of around 10 bln usd.

Read More: Dollar slides on reports Venezuela to diversify reserves

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Posted by Adam Kritzer | in Central Banks, US Dollar | No Comments »

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