BCB to Intervene in Dollar Market with New Regulation to Avoid 'Jolts'

The Central Bank of Bolivia (BCB) is set to approve a regulation designed to intervene in the foreign exchange market, aiming to curb excessive fluctuations in the dollar's exchange rate. BCB President David Espinoza announced that the new mechanism, termed "purchase and sale of dollars," will allow the bank to buy or sell U.S. currency when it detects "jolts" or "overreactions" in the market operating under a flexible exchange regime.

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The Central Bank, today, is approving a regulation that we have called "purchase and sale of dollars." It is an intervention mechanism, through which we will guarantee that the freely operating exchange market avoids episodes of overreaction.

Espinoza emphasized that this measure does not establish a fixed ceiling or floor for the dollar. Instead, it serves as a tool to moderate movements considered too abrupt. "In a flexible exchange rate regime, price bands are not established. This is floating. We are not going to say that the Central Bank will have a ceiling or a floor; we will observe the evolution based on a real exchange rate," he explained.

The BCB president defended the transition from a fixed exchange rate, which had been in place for over three decades, to a flexible system. He stated that the recent currency variations are within the expected margins for such a transition. "We have to let go of the idea that the exchange rate has to go down. We have actually shown the experiences of central banks, and that is that it has to oscillate. It can go down, it can also go up," Espinoza said.

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In a flexible exchange rate regime, price bands are not established. This is floating. We are not going to say that the Central Bank will have a ceiling or a floor; we will observe the evolution based on a real exchange rate.

He assured that the bank monitors the exchange rate daily and will announce interventions opportunely if it identifies any significant overreaction. The goal is to ensure stability and predictability in the currency market without resorting to rigid controls, allowing the dollar to "oscillate" within reasonable parameters.

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We have to let go of the idea that the exchange rate has to go down. We have actually shown the experiences of central banks, and that is that it has to oscillate. It can go down, it can also go up.