[1zq]

It doesn't generate free money. On the contrary, it generates very expensive money.

For this operation, the central bank received about $840 million in cash from GS, and PDVSA must now pay back $2.8 billion plus interest to GS.

Whereas before this operation, PDVSA (owned by the Venezuelan state) had to pay back $2.8 billion plus interest to the central bank (also owned by the Venezuelan state).

[jevgeni]

But where did the central bank get the 2.8 billion USD? Venezuelan central bank can't print USD. So, net the country owes 2.8 billion USD + interest either way. It's just that the ultimate creditors have changed.

[josefx]

The 2.8 billion are PDVSA-issued bonds not USD, they only exist on paper and aren't worth a cent unless Venezuela can pay. Afaik Venezuela can print as many of those as it wants.

> So, net the country owes 2.8 billion USD + interest either way.

Venezuelas right hand owes money to Venezuelas left hand, both are Venezuela so Venezuela owes nobody. Now we have Goldman buying that dept from Venezuelas left hand and some more ( it can print as much as it wants of that ) for $5, Venezuela now owes 2.8 billion to someone else it has to pay back in the future in exchange for having $5 now. Those $5 benefit the current government and will affect any future government negatively.

[whatok]

Venezuela cannot print USD and needs USD to pay coupons/principal.

[josefx]

I may be missing something. They make USD by selling bonds, as long as they make more USD then the scheme has running cost they can increase the amount of USD they have right now by selling more bonds below value, leaving any future government in dept.

[jevgeni]

Venezuela cannot produce USD dollars out of thin air. If their monetary regime allows it, they may print Venezuelan bolivar at the cost of raising inflation in the country.

When we say "Venezuela issues a 2.8 billion USD bond" that means that the central bank sells new bonds denominated in USD on the international market (most likely an auction among bank players in London or NY).

What had happened here is that they did that and then unbeknownst to them one banker sold their bonds to another banker. The act of reselling that debt on the secondary market does not magically increase that debt. It just changes whom you have to repay it to.