Bitcoin is shaping up to be the unofficial legal tender in Venezuela as the country continues to suffer the effects of hyperinflation in its currency. Venezuela has become a shadow of its former self as the once prosperous oil-rich country now struggles to provide citizens with the most basic needs of life. The global crash in oil prices dealt a tragic blow on the country’s economy – its foreign reserves had $43B in 2009 but it has less than $11B now.
A series of ill-timed government policies such as socialist programs to redistribute wealth triggered economic chaos in Venezuela. However, the most recent economic policy that could cause Bitcoin to displace the Venezuelan Bolívar is the move to withdraw the 100-bolívar note from circulation. This article explores some of the reasons behind the trending shift towards Bitcoin in Venezuela.
Bitcoin comes to the rescue in Venezuela
The 100-bolívar was already practically worthless because it is worth less than $0.03 outside of the government’s ‘unrealistic’ pricing system. Of course, most Venezuelans don’t know what the 100-bolívar note is really worth and shopkeepers have started weighing the notes instead of counting them. Venezuelans have responded with riots and protests and the government have extended the deadline for outlawing the 100-bolívar note until January 20.
However, many Venezuelans have lost confidence in the country’s currency and many of them are starting to move their funds into Bitcoin. Bitcoin is global cryptocurrency and you don’t have to worry that its value would be eroded by the economic woes of any single country. In fact, economic woes tends to boost the price of Bitcoin in much the same way that gold tends to soar during periods of economic uncertainty.
The rushed nature of the move to outlaw the 100-bolivar note is also making people scared of holding fait currencies going forward. The Venezuelan government initially gave a 72-hour window for spending the 100-bolivar note but ATMs were mostly dispensing those same 100-bolivar notes and businesses were hesitant to accept the notes.
Hence, most people would have ended up with hundreds of thousands useless 100-bolivar notes if the window ended and they’ve not been able to replace their 100-bolivar banknotes. However, the decentralized nature of Bitcoin means that people don’t have to worry that the government will decide to outlaw the currency out of the blue.
Bitcoin will embed itself deeper into the Venezuelan economy
The Venezuelan government’s plan to remove the 100-bolívar note from circulation to be replaced with higher denominated notes reveal the level inflation in the country’s economy. In a report published recently, Steve H. Hanke and Charles Bushnell of Johns Hopkins notes that Venezuela now has hyperinflation because it has maintained a monthly inflation rate of more than 50% for 30 days. In essence, the reality of hyperinflation in the Venezuelan economy makes its expedient to look for alternative currencies.
More so, analysts observe that the problems facing fiat currencies globally will be amplified going forward as isolationism continues in the global geopolitical landscape. Gil Luria, the director of research at Wedbush Securities notes that “the more there is an expectation for new barriers to be erected, the more there is an expectation that Bitcoin will be valuable for moving money across borders.”