CARACAS (Reuters) - Venezuela’s central bank has doubled the amount of euros in cash it provides local banks as hyperinflation and U.S. sanctions prompt a surge in use of the European currency, four sources familiar with central bank activities said.
Payment in euros has become more common round Venezuela since the bank started distributing them to financial institutions in February, shortly after Washington intensified sanctions intended to force out leftist President Nicolas Maduro.
The banks distribute the cash to local companies to pay for imports or employee bonuses, easing pressure on the depreciated and cash-scarce local bolivar currency.
In mid-October, the monetary authority began giving around 1 million euros ($1.10 million) each week to the country’s main private banks and around 500,000 euros to smaller banks, double the previous amounts, the sources said.
At that rate, the euros could surpass within months the value of bolivars in circulation, which authorities put at the equivalent of $59 million.
The central bank did not respond to Reuters requests for comment.
Though it was illegal to use foreign currency until mid-2018, those Venezuelans who can often keep euros or dollars to protect against constantly rising bolivar prices, using them for daily transactions from food to car parts and even church collections.
The increased distribution of euros comes because the OPEC nation is receiving them for more of its crude and gold exports in the wake of sanctions, rather than dollars, according to three of the sources, one close to Maduro.
“Now, more euros come from oil than from gold,” said the source linked to the ruling party, who spoke on condition of anonymity. Reuters was unable to independently confirm that.
Some foreign institutions have been reluctant to deal with Venezuela’s financial system after Washington on March 22 sanctioned Venezuelan state banks including the central bank and state development bank, Bandes.
In August, the U.S. Treasury said it could sanction any entity it determines to be providing material assistance to Maduro’s government.
The use of euros in Venezuela boomed this year after state oil company PDVSA [PDVSA.UL] began receiving the bills in payment for crude shipments, a strategy to avoid the U.S. financial system amid sanctions.
Additional to the central bank’s distribution, euros enter into circulation because PDVSA and state agencies use them to pay contractors and suppliers.
While the provenance of the central bank’s euros is unclear, customs data compiled by Import Genius - a business intelligence firm that tracks shipping data - show that Russia’s Gazprombank sent two plane shipments carrying cash to Venezuela in January to Bandes: one containing 100 million euros ($110.20 million) and another containing $50 million in U.S. dollars.
Reuters was not able to independently verify this information. Import Genius said in a statement that the information accurately reflects trade data processed by customs agencies around the world.
Gazprombank said in a statement to Reuters it stopped all transactions with Bandes as of March 22. It declined to elaborate “without our own review of the original sources of information.”
“Gazprombank strictly adheres to the rule of law and complies with proper rules and regulations,” it said.
Neither the Venezuelan state bank nor the Information Ministry responded to requests for comment.
Moscow has criticized Washington’s sanctions as an effort to give U.S. commercial interests an unfair boost.
Consultancy Ecoanalitica reported that 53.8% of October retail transactions were carried out in foreign currency, as the bolivar has depreciated more than 90% this year.
The central bank did not respond to a request for comment on Ecoanalitica’s findings.
Opposition lawmaker Carlos Paparoni said euros are entering the economy via airplane from Turkey and Russia as a result of gold exports, much of it shipped to Turkey and the United Arab Emirates. He did not provide evidence.
Reporting by Mayela Armas and Corina Pons in Caracas; Additional reporting and writing by Luc Cohen; Editing by Andrew Cawthorne