CARACAS (Reuters) - Venezuela's central bank has begun negotiations with Deutsche Bank AG DBKGn.DE to carry out gold swaps to improve the liquidity of its foreign reserves as it faces heavy debt payments this year, according to two sources familiar with the talks.

Venezuela's Central Bank President Nelson Merentes attends to a news conference at the headquarters of the Central Bank in Caracas February 8, 2013. REUTERS/Carlos Garcia Rawlins

Low oil prices and a decaying state-led economic model have weakened the OPEC nation’s currency reserves and spurred concerns that it could default on bonds as it struggles to pay $9.5 billion in debt service costs this year.

Around 64 percent of Venezuela’s $15.4 billion in foreign reserves are held in gold bars, which limits President Nicolas Maduro’s government’s ability to quickly mobilize hard currency for imports or debt service.

In December, Deutsche and Venezuela’s central bank agreed to finalize a gold swap this year, the sources said. The sources did not confirm the volume of the operation in discussion. Neither Deutsche nor the central bank responded to requests for comment.

Gold swaps allow central banks to receive cash from financial institutions in exchange for lending gold during a specific period of time. They do not tend to affect gold prices because the gold is still owned by Venezuela and does not enter the market.

Venezuela is suffering from a severe recession, triple-digit inflation and chronic product shortages. The government’s currency control system has slashed approval of dollars for product imports, leading to empty store shelves and snaking supermarket lines.

The situation helped the opposition win a crushing two-thirds majority in the Congress in December. President Maduro says his socialist government is under “economic war” and dismisses default rumors as a smear campaign by adversaries.

Credit default swaps show that traders see a 78 percent chance of default in the next year, according to Thomson Reuters data.

The sources said Venezuela in recent years had been carrying out gold swaps with the Switzerland-based Bank for International Settlements (BIS) in operations ranging in duration from a week to a year. One source said Venezuela conducted a total of seven such transactions.

BIS halted these operations last year, both sources said, as a result of concerns about the associated risks.

BIS declined to comment.

Under the rule of late socialist leader Hugo Chavez, the central bank used billions of dollars in cash reserves to finance social programs and off-budget investment funds. This meant that gold became a larger percentage of reserves.

The value of Venezuela’s monetary gold has declined by $3.5 billion in the 12 months ended in November to reach $10.9 billion, central bank data shows. This appears to reflect swap operations and a 10 percent decline in the price of gold. It was not immediately evident if the central bank has also been selling gold.

The central bank in 2015 carried out a swap with Citigroup Inc's C.N Citibank, according to one of the sources. Citi declined to comment in 2015.

One of the sources said the central bank has taken an unspecified amount of gold out of the country so that it can be certified, which is required for gold that is used in such swaps. The gold lost its “certificate of good delivery” in 2011 when Chavez transferred it from foreign banks to central bank coffers, one of the sources said.

Venezuela's $1.5 billion 2016 Global Bond VE260216=RR comes due at the end of February, while state oil company PDVSA faces payments of $2.3 billion on its 2017N bond VE055409692= in October and $435 million on its 2016 bond VE046054679= in November.