Besides the end of property rights, Venezuela also is turning into a financial madhouse. Almost every blogger I can find on Venezuela is commenting about it how Venezuela’s central bank, the guardian of its very currency, is under attack by the Chavista dictatorship. The Financial Times reported here that Venezuela’s central bank shifted up to $20 billion of its $30 billion in reserves from U.S.-Treasury assets to the Bank of International Settlements over in Switzerland, something that may be a move to annoy the U.S. but which could cause Venezuela to lose its own money, too. Any central bank can do that but what makes it a madhouse is that it’s intransparent and it orders people around who should not be ordered around, a usurpation of legimate power. What’s more, the world gold and foreign exchange markets are being affected by the Chavista gyrations, which, it should be noted, are being greeted with extreme skepticism by investment banks like Goldman Sachs and Bear Stearns. Now, U.S. businesses are under assault and once again, the Financial Times is on top of it with an astounding string of incidents here.Here is a brief roundup of Venezuela’s financial madhouse that we are feeling like a whipsaw all over the world right now:

Pedro Burelli at PMB Comments writes that although he is skeptical, alongside Goldman Sachs, about the veracity of the operation, he says the political thrashing the central bank is taking is real. He has a copy of the Goldman memo and explains that not only is the government’s jawboning statements an infringement on the bank’s actions, but so are the government’s usurpation of actual powers.

Miguel Octavio at Devil’s Excrement, who is an expert on financial matters, writes that Venezuela is the nation that stands to get burned from this shifting of reserves and also notes that Venezuela is hardly going to get away from the U.S. by running to the BIS in Switzerland. He thinks this move is all for show but in the end, it’s Venezuela that will lose money by this, due to the current international interest-rate climate and differntial. He expresses a belief that all of these moves are an effort to destroy transparency. He also notes that there is a concurrent assault on rule of law in this new essay by a judge here.

Gustavo Coronel at VCrisis, in a truly fine essay, writes that Chavez’s bid to move bank reserves away from the U.S. is linked to the failing investment climate in Venezuela and is linked to Chavez’s hatred of foreign investment and investors. I am not doing justice to Gustavo in this overly quick summary here – it’s a superb analysis. He’s the person who coined the term ‘financial madhouse,’

Veneconomy‘s analysts write that the central bank transfer will have no impact on world markets or Venezuela, despite Chavez’s posturing – and they don’t think he’s telling the truth anyway – but will serve to badly destroy the central bank.

UPDATE: Goldman Sachs’ latest comment on this:

VENEZUELA

Central Bank Acknowledges Divestment of US Treasuries

According to central bank director Maza Zavala the bank sold US$10 billion in US Treasuries holdings four to five months ago and deposited the proceeds at the Swiss-based Bank for International Settlements (BIS). Some dollar deposits at US financial institutions were also allegedly transferred to the BIS.

According to Zavala, the total amount of central bank reserves now deposited at the BIS ascends to US$20 billion, and the transaction responded to financial diversification imperatives, not political criteria.

President Ch????vez stated a few days ago that it is irrational for countries in the region keep their reserves in the United States and should instead take concrete steps to create a regional central bank to hold them. To that effect, Venezuela would be ready to transfer immediately US$5 billion in reserves to the hoped-for new regional central bank.

Comment: The issue of where the reserves are invested has generated significant market attention. Central bank officials have not only made contradictory statements but have also challenged the accuracy of statements made recently by President Ch????vez on this issue.

Where are the reserves of the central bank? According to the latest balance sheet information, the central bank has about US$5 billion in gold reserves (of which about US$2.7 billion are in gold positions held outside the country), another US$5 billion in cash reserves, and approximately US$21 billion is invested abroad. As of June 2005 foreign exchange investments abroad were split between: (1) US$12.6 billion in foreign securities, of which 80% were in US Treasuries, and (2) US$8.5 billion in deposits/CDs held in foreign banks.

Up to the end of August the portfolio of investments was little changed but we notice the conspicuous increase in the stock of foreign exchange cash, which went from US$1.0 billion at the end of June to US$4.8 billion as of the end of August. That is, the increase in reserves during June-August was not invested but simply saved in cash (specie). This could represent a deliberate policy decision not to invest more abroad or simply liquidity management by the central bank in anticipation of the US$3 billion transfer to the newly created FONDEN government-controlled fund.

From the data above it is possible that the central bank indeed sold about US$10 billion in US Treasuries and invested the proceeds at the BIS. It is also possible that the US$8.5 billion in deposits held in foreign banks ended up being transferred to the BIS or other European banks.

In our view, the reallocation of the reserve investment portfolio, if it took place at all, more than being guided by diversification considerations, probably reflects a political strategic decision to be at arm’s length from the US authorities. The government might fear that the increased confrontational rhetoric towards the United States could somehow escalate and unforeseen events could lead the US authorities to eventually freeze Venezuelan assets in the United States (the often-mentioned interest in divesting the assets of Citgo in the United States could perhaps be driven by similar considerations).

The freezing of Venezuelan assets in the United States is, in our view an extremely low probability event, but behind the heated rhetoric, the Venezuelan government seems clearly to be taking small steps to weaken the country’s financial and commercial links with the United States, privileging instead other politically strategic alliances.