Venezuela is the world’s worst performing economy, hit by 700% hyperinflation and sinking in debt. Its currency, the bolivar, is currently losing half its value every 18 days. However, the government announced on Monday that it will remove the country’s largest banknote (100 VEF, worth $0.02 on the black market) over a 72 hours period. We tried to assess the potential impacts this will have on the Venezuelan population, and how bitcoin can come to the rescue.
A Country’s Economic Collapse
As all countries suffering from hyperinflation have done in the past (with absolutely no success — think Weimar Republic, Zimbabwe, Argentina, etc.), the Venezuelan government just announced the removal of the largest currency denomination (100 VEF, only worth 2 U.S. cents). They’ll also print larger ones (up to 20,000 VEF, due on Thursday). With hyperinflation expected to reach a staggering 1600% next year according to the IMF, one can easily foresee a situation where the government will repeat this process until the currency is dead and citizens’ wealth gone with it.
Venezuelan authorities used the same “excuse” as the Indian government for removing the large banknotes, namely “to eliminate corruption and fight mafia.” The lack of planning and future roadmap is likely to result in a cash chaos in Venezuela as it did in India. However, the economic situation in Venezuela is much worse, hence one can fear that the consequences for the population there could be even more tragic.
President Maduro also decided to close the borders with Colombia on Monday, preventing any additional capital flight out of the country. But this move will also prevent the population to access foods and other supplies that were being imported from Colombia, as basic supplies shortages are now too common in Venezuela.
Bitcoin to the Rescue
In a country hit by hyperinflation and infinite money printing, blocked by capital controls and closed borders, bitcoin often comes to mind: Venezuela is ranked 2nd in the Bitcoin Market Potential Index (BMPI), measuring where in the world the potential for bitcoin adoption is the greatest. With its unique characteristics (borderless, outside of governments manipulation, anti-inflationary, finite supply, decentralized, censorship-resistant), bitcoin could be a lifeboat that previous generations never had. One can already notice how bitcoin is able to bring supplies into the country when almost all other ways are not working anymore. Bitcoin.com asked some Venezuelan bitcoin users to outline the impacts that Maduro’s decision will likely have and how bitcoin can come to the rescue in their country.
Exclusive Interview With a Bitcoin User in Venezuela
Bitcoin.com got insights from within Venezuela and talked to a few people, who must remain anonymous for security and political reasons. Please note: names have been modified and translations from Spanish into English are the article authors.
As a Venezuelan, what impacts will the demonetization have on you and your compatriots? What is happening nowadays since President Maduro decided to take out the 100 bolivars bills out of the economy?
Armando: Among several things that this will likely bring is more and more devaluation and economic instability. The shops are closed, there is no consumer activity as even the debit/credit cards readers are too slow or just off. Many people have been victims of thefts because they had to carry huge stacks of bills in their wallets or bags.
How are the people reacting to it now? What are they doing to preserve their wealth?
Armando: Right now there is this atmosphere of chaos with all of these economic measures that have been implemented during last week. People could benefit from converting into US dollars which are more stable, but it is not possible, they are trapped. It would help if there were free flows of currencies (the US dollars) in our territory.
How are you using bitcoin to avoid the worsening economic situation in your country? How can bitcoin help in this dire situation?
Armando: Personally I use bitcoin as a way to save and secure my money, in order to protect my wealth from the hyperinflation we are currently facing. Bitcoin really can help Venezuela bloom economically and relieve Venezuelans from these controls imposed on us.
How is the bitcoin ecosystem evolving in your country? What changes do you see?
Armando: The truth is that bitcoin helps us to guard and protect our money outside of any economic measure that the government will implement to harm us. Each day the trading community is growing in Venezuela, but it grows in mere clandestinity, very very underground.
Are you afraid that the government may condemn you and your activities related to bitcoin?
Armando: Of course! Talking about bitcoin in Venezuela is a taboo subject.
Finally an Alternative to a Dying Fiat Currency
As the economic situation in Venezuela worsens, more and more people do like our interviewees and turn to bitcoin. Buying, mining, trading the cryptocurrency that has real value in the entire world. Venezuelans can use Localbitcoins or Surbitcoin to buy/sell bitcoins with bolivars, as they can use the AirTM app to convert their near to worthless bolivars into a more stable currency “in the cloud.” Weekly Localbitcoins volumes are increasing a lot in Venezuela, as shown in the graph below.
Braving the fear of the repressive government, mining activities are also growing in Venezuela, and represent the last chance of survival for some Venezuelan miners who must remain underground, in the collapsing socialist country. Venezuela is a reminder that all fiat currencies can go bust, but this time there’s an alternative that was not available to the residents of the other 57 times national currencies that have hyper-inflated since 1975; Bitcoin.
What do you think about the economic situation in Venezuela and bitcoin? Let us know in the comments below.
Images courtesy of NPR, BBC, Shutterstock and Coindance
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