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The Córdoba Devaluation Rumor

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Nicaraguan and Yale graduate Doctor Néstor Avendaño advises;

In times of political crisis, don’t get carried away by false economic news on social networks.

He was of course referring to a social media story that the Córdoba was going to be devalued and that bank deposits in foreign currency would be frozen and converted into Córdobas at the new exchange rate established by the monetary authority of the country… All of which would happen on Monday, September 17th 2018.

In his blog post of the 9th of September, 2018, Avendaño alerts us to some concrete reasons why the value maintenance clause and the large number of price index mechanisms in Córdobas, coupled with the current official exchange rate formula would make this notion of Central Bank devaluation implausible. It would also require a change in Law No. 732 Organic Law of the Central Bank of Nicaragua which requires that obligations expressed in Córdobas will maintain their value in relation to a foreign currency. In other words, any change in the official rate of exchange of the Cordoba will result in the obligation expressed in Córdoba being adjusted by the same proportion as the new rate.

Avendaño goes on to say that a planned devaluation of the Córdoba cannot begin during a political crisis but would need to be introduced through an appropriate macroeconomic policy.

As for the foreign account freezing and conversion into Córdobas at the new official exchange rate rumor, Avendaño believes this would “destroy the central column of the current economic model of the country”. He quotes the 75% of total deposits in US dollars and 89% of the loan portfolio is also in US dollars with the other 11% in Córdobas but with a “maintenance of value” that makes it a “dollar in disguise”.

Doctor Néstor Avendaño is the president of Consultores para el Desarrollo Empresarial (COPADES) in Nicaragua, a consulting firm focused on economic, financial and managerial consulting for the private sector. He is part of a Central American regional group of similar consultants in Guatemala, El Salvador, Costa Rica and Honduras.

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