Amid the confusion generated by the decision of the Central Bank of Nicaragua to establish a fixed exchange rate of the Córdoba against the dollar, the President of that entity, Ovidio Reyes, clarified that financial institutions and exchange houses will continue their establishment. Exchange rates. Changes with the public, as always and the BCN rate will only be a reference.
Banks and all those dedicated to the sale of foreign currency will establish their own exchange rate according to the demand for dollars in the national market and will keep only the official exchange rate as reference. And in the event that these market rates vary strongly due to the demand and supply of dollars, the Central Bank of Nicaragua will intervene to stabilize the market.
Generally, intervention is carried out through the mechanism of injection or withdrawal of liquidity from the national market, as is always the case. For example, the Central Bank sells or buys cordobas and dollars from commercial banks through the exchange tables, or uses the stock market to stabilize the circulation of money through the buying or selling of debt.
What this means is that now supply and demand will prevail in the exchange rates of the national market. For example, in December, when a greater inflow of dollars is received due to more remittances, it means that more cordobas are needed to guarantee the convertibility of those currencies into the national currency. Then, the Central Bank intervenes in the market, issuing more cordobas so that the exchange rate remains established.
Previously, financial institutions would take the official exchange rate as a reference when determining the weekly variation of the exchange rate with the public, now it will be exclusively supply and demand. The BCN monitored the variations through the behavior of the exchange interval.
Also read: BCN announces new changes in the sliding rate of the Cordoba against the dollar
But what if the exchange rate differential suddenly increases? “If there is too much fluctuation (in the exchange rate), we start selling the currency, we have enough currency to sell in the market,” Reyes explained.
“This is a mechanism to regulate it; That is, if there is an increase, we will immediately move to satisfy and balance the market. But the truth is that both people and financial institutions and commercial establishments dedicated to the activity of buying and selling currencies have always established the selling exchange rate that best suits them,” he said.
Three functions of fixed exchange rate
Reyes explained that the official fixed exchange rate, which will be established by January this year, will have only three purposes. “It is official (the BCN exchange rate), in the sense that it applies to three elements, to the slippage that is applied in the accounts, that is, when the contracts are in place and with the maintenance of the price when the contract is settled in Cordoba. , it uses that official exchange rate to adjust the contract or it is adjusted to maintain value with that exchange rate in the same bank accounts.
In addition, the fixed exchange rate established by the Central Bank is used to buy dollars, that is, when financial institutions come to sell us dollars, we buy it at 36.6243 (the exchange rate fixed from January 1) and it is still Applied when the public sector wants to repay the debt, they come and buy dollars from us and we sell them at 36.6243,” Reyes explained in an appearance at a propaganda outlet for the dictatorship on January 9.
He reiterated that “the sale (of dollars) is completely free, we, the Central Bank, have never intervened in the sales market except to sell dollars, but we do not force anyone to make transactions with the exchange rate. “
“The month of December is a month of big activity, and I think there was probably a lot of liquidity, there were bonuses; So maybe the exchange rate went a little bit higher there, but I hope it will stabilize and if not, we will put the dollar in so that it stabilizes. But the sale is free, the Central Bank does not regulate the sale of currency, this is the official exchange rate for those operations that I mentioned to you.
Also read: Is the fixed exchange rate of the Córdoba against the dollar that came into force in January sustainable? This is what analysts say
(tagstotranslate)cordobas | dollar | change in regime