In Nicaragua, people pay in cordobas but think in dollars. That is why the idea of taking the country out of the orbit of influence of the US dollar (or simply de-dollarizing the economy to re-cordobize it), is described by national economists as an absurdity, a delusion, “another abuse of the ignorance of the people who follow them,” or “a sample of ignorance, stubbornness, and incompetence of the politicians.”
On Wednesday, April 26, Laureano Ortega Murillo, son of Daniel Ortega and his wife and vice president, Rosario Murillo, predicted the end of the “world dictatorship of the dollar” and the birth of a new world order while giving the inaugural lecture of the academic year at the National Autonomous University of Nicaragua (UNAN-Managua).
Laureano —who was awarded the honorary title of distinguish guest by the university authorities imposed by his parents— stated that “transactions and exchanges are already being carried out without using the US dollar. That is, the world dictatorship of the dollar is over.” “Nicaragua cannot and should not be excluded from this new and much-needed modality of work and financial cooperation,” he added.
Economist Enrique Saenz assesses that “this is no more than the expression of an insane delusion, and a way to appear internationally —which is also delirious— aligned with the adversaries of the United States and Europe and, in the process, give some consolation to the followers they still have. They see the adverse situation in which they live in Nicaragua, to the point that there is a stampede towards the empire, so they receive a message that sustains the meager hope that some may have.”
The economic relations (not only commercial) of any country are determined to a great extent, by the zone of influence in which that country is located, and from there derives the currency with which it will make its transactions in the international level. “It is not a question of will, or political decision. It is a manifestation of economic reality,” said Saenz.
This explains the existence of the eurozone, the yen zone, and the dollar zone, just as the ruble once had its own weight and its own zone. Given that transactions with Eastern Europe were made in rubles, a currency that was restricted to Russia and some surrounding countries after the fall of the “Iron Curtain.”
Trying to separate the Nicaraguan economy from its currency of reference —the dollar— is an even more difficult task, if one considers that very probably never in the recent economic history of the country had our economy depended so much on the United States currency and, consequently, of its links with the rest of the countries that orbit around that currency.
Some data provided by the expert point out that almost half (45.5% or 1,792.4 million dollars), according to data from the Single Window for Foreign Trade of Nicaragua (VUCEN), of the USD 3.940 billion that the country received for merchandise exports in 2022, came from the United States. And that a good part (924.3 million or 23.5%) comes from the rest of the countries of the isthmus, “and none of them make their transactions in rubles or yuan.”
The same is demonstrated when looking in detail at the destination of the country’s free trade zone exports: the vast majority go to the United States and Mexico. Remittances, on the other hand, serve to highlight this dependence: 81.7% (1.488 billion) of the 1.820 billion dollars received in remittances as of May 2023, come from the United States, according to official data published by the Central Bank of Nicaragua.
Other sources of revenue, such as credits from IDB, W.B., IMF, CABEI, etc., are in dollars, not in yuan or rubles. Regarding tourism, Saenz questions how many Russians or Iranians are seen in our hotels or restaurants, while the investments coming from the three North American countries or Europe are not in yuan, Iranian rials, or rubles.
“Even Xi Jinping, when he talks about international trade, he talks of dollars, not billions of yuan,” Saenz added.
Data kills the illusion
Economist Marco Aurelio Pena points out that, even if the decision only included de-dollarization of the economy in starting the process of re-cordobization (as was seen in January, when stores were ordered to set their prices in the national currency), that would be quite difficult. Because people trust the dollar more, on account that the mega-devaluations of the 80s are still present in the collective memory of Nicaraguans, to the point that most bank deposits —and most of the loans granted— are in dollars.
“From a conventional and money psychology point of view, the dollar is deeply rooted in the Nicaraguan’s mind, and that is not going to change overnight, unless they implement a foreign exchange control policy, which would have negative consequences,” because “this type of measures causes traumas, and more so in an economy as dollarized as ours, which is very accustomed to the use of that currency,” he explained.
A process to re-cordobized the economy requires restoring confidence in the national currency, but also that the country shows greater growth and economic strength so that economic agents do not need to use the green bill as a safe haven for their savings.
Peña also does not believe that the country is able to replace the dollar for any other foreign currency, not even with the renminbi (the real name of the official Chinese currency), because there are no conditions for that, even when it is known that Beijing gave Argentina the equivalent of 5 billion dollars in yuan to make transactions with that currency.
“I do not see China filling Nicaragua with yuans because of Nicaragua’s insignificant weight in world trade or in bilateral relations. They have not done it even with Costa Rica, which is a much larger economy than ours,” he affirmed, asserting that “the data kills the story…in this case, the political story.”
Although Peña admits that China is an important global economic reality, he also points out that Nicaragua is not under its economic sphere of influence but that of the United States, which is our largest buyer and is closer, which lowers the cost of transporting goods. And although the European Union is further away than the United States, the existence of the Association Agreement offers a legal framework for developing trade.