Last Thursday when we recounted the story of how Venezuela is now literally flying in paper money (using three dozen cargo Boeing 747s), we wrote that “Venezuela’s hyperinflation, already tentatively estimated at 720%, will likely add on a few (hundred) zeroes by this time next year. It is also quite likely that Venezuela the country, as we know it now, will no longer exist because once any nation is swept up in hyperinflationary rapids two things occur like clockwork: social uprisings and political coups.

But before it gets there, Venezuela’s president Maduro will be busy liquidating the nation’s roughly $12 billion in gold reserves, which his late predecessor fought hard in 2011 to repatriate back to Caracas. Sadly that gold was never meant to stay in Venezuela after all.“

And sure enough, just a day later, Reuters writes that Venezuela’s central bank has begun negotiations with the suddenly troubled Deutsche Bank to carry out gold swaps “to improve the liquidity of its foreign reserves as it faces heavy debt payments this year”, payments which it won’t be able to fund unless it manages to “liquify” its gold.

One look at Venezuela’s CDS which imply a 78% probability of default in the next year reflect the $9.5 billion in debt service costs this year.

The problem is that around 64% 15.4% of Venezuela’s $15.4 billion in foreign reserves, or around $10 billion, are held in gold bars, “which limits President Nicolas Maduro’s government’s ability to quickly mobilize hard currency for imports or debt service.”

As Reuters reminds us, in December, Deutsche and Venezuela’s central bank agreed to finalize a gold swap this year. 

Technically, gold swaps allow central banks to receive cash from financial institutions in exchange for lending gold during a specific period of time. They do not tend to affect gold prices because the gold is still owned by Venezuela and does not enter the market.

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