Banks and commercial institutions will continue to set their exchange rates of the Córdoba against the dollar, the BCN clarifies.

Amid the confusion caused by the Central Bank of Nicaragua’s decision 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 them. exchange rates. Changes with the public, as always happens and the BCN rate will only be a reference.

Banks and all those dedicated to the sale of foreign currency shall establish their exchange rate according to the demand for dollars in the national market and shall have the official exchange rate as a reference only. And in the event that these market rates fluctuate strongly due to dollar supply and demand, the Central Bank of Nicaragua will intervene to stabilize the market.

In general, as always, intervention is done through the injection or withdrawal of liquidity from the national market. The central bank, for example, sells or buys cordobas and dollars from commercial banks through the exchange table, or uses the stock market to stabilize the circulation of money through the purchase or sale of debt.

This means that now the national market exchange rates will be dominated by supply and demand. For example, in December, when more inflows of dollars are received due to more remittances, it means that more cordobas are needed to guarantee the convertibility of that currency into the national currency. Then, the central bank intervenes in the market, releasing more córdobas so that the exchange rate remains fixed.

Previously, financial institutions took the official exchange rate as a reference when setting the weekly difference of the exchange rate with the public, now it will be only supply and demand. BCN monitored variations through the behavior of the exchange gap.

Also Read: BCN Announces New Change in Córdoba’s Sliding Rate Against Dollar

But what happens if the exchange rate gap widens suddenly? “If there is a lot of fluctuation (in the exchange rate), we start selling currency, we have enough currency to sell in the market,” explained Reyes.

“It 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 people who are dedicated to the activity of buying and selling currencies and financial institutions and commercial institutions have always established the selling exchange rate that suits them best,” he added.

Three functions of a fixed exchange rate

Reyes clarified that the official fixed exchange rate established from January of this year will have only three objectives. “It is official (BCN exchange rate), in the sense that it applies to three components, for the slippage applicable in the accounts, that is when the contract is set up in Córdobas with the maintenance of value in Córdobas, the use of that official exchange rate to adjust that contract does or is adjusted to maintain value with that exchange rate in the same bank account.”

Also, the fixed exchange rate established by the Central Bank “is used to buy dollars, that is, when financial institutions come to sell dollars to us, we buy them at 36.6243 (the fixed exchange rate from January 1) and that applies even then. When people want to pay the sector debt, they come and buy dollars from us and we sell them at 36.6243,” Reyes explained in a Jan. 9 appearance at a propaganda outlet for the dictatorship.

He reiterated that “(the dollar’s) sale is completely free, we, the central bank, have never intervened in the sale market other than selling dollars, but we do not force anyone to deal with the exchange rate.”

“December is a month of great activity, and there I think maybe there was a lot of liquidity, there were bonuses; So maybe the exchange rate went up a little bit there, but I would hope that it stabilizes and if not, we enter the dollar so that it stabilizes. But the sale is free, the central bank does not regulate the sale of the currency, it is the official exchange rate for the operations that I mentioned to you.

Also read: Is the fixed exchange rate of the Córdoba against the dollar that will rule from January sustainable? Analysts say so