The Central Bank of Nicaragua Clarifies Fixed Exchange Rate Decision
In the midst of 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 to establish their exchange rates. According to Reyes, the BCN rate will only be a reference and will not be the sole determining factor for these establishments.
Banks and all people dedicated to the sale of foreign currency will establish their exchange rate according to the demand for the dollar in the national market and will only have the official exchange rate as a reference. In the event that these market rates vary strongly due to the demand and supply of the dollar, then the Central Bank of Nicaragua will intervene to stabilize the market. Generally, the intervention is carried out through the mechanisms of injection or withdrawal of liquidity from the national market, as has always happened.
Previously, financial institutions took the official exchange rate as a reference when setting 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 gap.
Reyes reiterates that the official fixed exchange rate that was established as of January of this year will have three objectives. It will be utilized in contracts to adjust maintenance of value and to buy or sell dollars. According to Reyes, the sale of the dollar is completely free and the Central Bank does not regulate the sale of the currency. It is the official exchange rate for certain operations.
The decision to introduce the fixed exchange rate has been met with both confusion and concern and it is yet to be seen how it will impact the wider economy of Nicaragua.