Here is why Venezuela traded 1.4 million ounces of its gold reserves to Citi

Here is why Venezuela traded 1.4 million ounces of its gold reserves to Citi

Venezuela’s Central Bank logo and coin, via Wikimedia Commons.

"Beggars can't be choosers," goes the saying, and it seems to be the best way to explain Venezuela’s recent move to turn to U.S.-based financial icon Citigroup for some cash, as the country reels from a sharp decline in oil revenue.

Last week, local newspaper El Nacional reported (in Spanish) that President Nicolas Maduro's socialist government had signed a complex deal with Citibank — owned by Citigroup — to swap $1 billion in cash for about 1.4 million ounces of the country's gold reserves.

While the details of the deal are unclear, El Nacional did say that Venezuela would have to pay interest on the funds.

On the flip side, the agreement should provide the cash strapped nation much needed foreign currency to afford some basic items it is currently lacking of, such as medicine, food and even toilet paper, just to mention a few.

Here is why Venezuela traded 1.4 million ounces of its gold reserves to Citi

Blackmarket soap for sale at over five times the government regulated prices, east Caracas. (Image courtesy of Annalie Ibarra, Venezuelan in Chile)

Venezuela has the world’s largest estimated oil reserves, which it has used to position itself as a foil to American “imperialism.” The state received 95% of its export earnings from petroleum before prices fell, but it is now struggling to cover its own needs and support a foreign policy rooted in oil-financed largess, including shipments of reduced-price petroleum to Cuba and elsewhere.

In terms of gold, the nation holds almost 368 tonnes, which makes it the world’s 16th-biggest gold reserves, according to the latest figures provided by the World Gold Council.

The recent drop in oil prices has not only affected Venezuela, but it has sent tremors through the global political and economic order, setting off an abrupt shift in fortunes that has bolstered U.S. interests. As a result, some top oil-exporting nations — particularly those hostile to the West, including Russia and Iran— are on the verge of a major financial crisis.