To weather hyperinflation and scarcity Venezuelans turn to bitcoins
"If there is one thing I regret, that’s not having started before," said Wuilmer B., one of the many Venezuelans who has just begun using bitcoins. Venezuela has been setting new bitcoin transaction volume records since April, and not because Venezuelans are crypto currencies speculators, but for two reasons: inflation is at a record high and getting hold of US dollars is almost impossible — the American currency was so far the only way for people to survive the collapse of the local currency and buy products, food and medicines that are no longer available in Venezuela.
- Friday, 08 September 2017
Bitcoins allow Venezuelans to buy Amazon gift cards with which abroad they can buy products, and have them sent by courier. Or buy dollars in neighboring Colombia.
Bitcoin is a virtual currency that is forged by the computing power of servers. No central administrator or repository manages the system, but a worldwide community. Its software keeps an inerasable track of all transactions, which take place on a peer-to-peer bases between users or web-based organizations deemed reliable or not by the community itself. This is why it is subject to speculation, and tends to oscillate in a high range. Entering the community means being part of its database, and making available one’s own computing power to become, in bitcoin jargon, a “miner”. Earning bitcoins from every transaction, miners can reap good profits from “mining”.
Many countries explicitly allowed or banned its use and trade, not so Venezuela and Colombia. Bitcoin, nonetheless, is causing some alarm for the government of the nation that holds the record of the highest inflation rate in the word (with a real rate estimated in the range of 760 to 850%).
Even if one would take the figures provided by bitcoin sellers with a grain of salt, there is other evidence hinting to a virtual gold fever in Venezuela: the sheer figure of trades and information requests about reliability and procedures mushrooming on the Venezuelan Internet; the increasing number of banks selling bitcoins even through regular credit cards; the higher than world-market-average valuation for bitcoin in Venezuela and the growing number of police interventions against “minería” centers.
The curve of bitcoin trade volumes in local currency, the bolivar, has shot up almost vertically over the last five months. According to CoinDance, the January 2016 7.7 million bolivars had already doubled a month later, and grown tenfold by December. Volume had risen to 3.5 billion in April 2017, to 17 billion in mid-August and 24.7 billion bolivars in the first week of September: that is a staggering 3200 times increase.
Reporter Luis Esparragoza said he bought bitcoins to provide his mother with a small investment. In Tachira, Arley bought them to legally import drugs from Colombia to resell in Venezuela. Evencio V. began buying bitcoins last year because a small investment was allowing him to "accumulate bitcoins to convert to dollars when needed." Eli used bitcoins to prevent the money she needed for treatment for her mother's cancer to vanish because of the depreciation of the bolivar, in a nation on the verge of default.
The government has allocated almost all of the currency from oil sales — of which the economy depends by 96% or perhaps even more by now — to pay the interests on the debt, and therefore little currency is left to be made available to importers or individuals, the assignment of which is strongly tainted with corruption.
Imported goods, over 70% of food for instance, keep costing more and more because buying dollars becomes ever expensive. In the first week of August, retail food prices rose repeatedly. One kilo sugar went from 14,000 to 16,000 bolivars (against a minimum wage of 97,531 bolivars). An employee at a grocery store in Chacao said: "The owner came in the morning with a new price list, but we’ll probably have a new one tomorrow." Some stores do not even show prices anymore to avoid having to change tags over and over.
To compensate for price increases, President Nicolás Maduro raised the minimum wage already three times in 2017. To fund this spending, just in the third week of July the government had to "print money" to the tune of 2.4 billion bolivars, pushing up the dollar and inflation.
Other government policies contribute to propel the price of the dollar, like the recent decision to pay all oil production contractors only in bolivars instead of bolivars and dollars. In order to be able to put to use the earnings and safeguard their value to avoid bankruptcy, businesses rush to buy dollars boosting demand.
Venezuela has become the paradise for bitcoin "miners", thanks also to the unintended effects of another government policy: subsidized power in Venezuela costs ten times less than in the US and one hundred times less than in European countries. Since mining bitcoins requires the software to run on as many servers as possible 24/7, the low cost of electricity makes such operations quite lucrative.
Bitcoin investing and mining is attracting thus ever more people, but is not devoid of risks in Venezuela. The police busted in January an 11,000 computers "mine". The police arrested also some software and computer vendors with the community not understanding why selling equipment was deemed illegal.
The virtual currency’s features are precisely what the Venezuelan currency lacks — like several other Latin American currencies: it is anonymous but every transaction is verified and recorded; bitcoins cannot be falsified or forged; no one — and therefore no even the government —- can look into other people’s "wallets"; the system cannot be regulated or controlled centrally and, above all, it is not inflationary because its monetary base is fixed (21 million, no more no less).
Chavista top officials have long ignored the advice of economists. It is likely that the government is now seeking counsel from cryptocurrencies experts, but the only option it would have is to officially ban it altogether. But would it then be able to control all Venezuelans discussing bitcoin online and making tiny and large transactions? The fever is such that it created a new currency rate: the bitcoin dollar.