The crisis that Venezuela is undergoing is complex and, in many respects, contradictory. The political crisis has been a constant for many years, but the country has been suffering an economic crisis at its most acute level for a little less than 5 years. Venezuelans have experienced a two-decade-long period of self-destruction and in recent years hyperinflation has added a touch of grace.
The production apparatus is in ashes, but the Government continues to print money, which has led to a dramatic increase in prices. Inflation reaches more than 50% monthly, since the bolivar (VES), the official currency, is worth almost nothing. Of course, Bitcoin plays an extremely important role in all this, but not exactly as many bitcoiners abroad believe.
Venezuela has never been a particularly productive country but was fortunate to be blessed with oil. The export of this non-renewable resource, especially during the postwar period, provided considerable material wealth. However, the country never developed the economic, institutional, social and cultural maturity necessary to overcome the revenue-based model, since it did not invest in building a strong productive apparatus.
Incidence of Oil Price
The price of oil is relatively low in international markets, which especially affects Venezuela for several reasons. It should be noted that Venezuelan oil requires high refining costs because it is extremely heavy. Besides, it has a limited customer base, since there is an infrastructure adapted to that particular type of oil that is difficult to build elsewhere. On the other hand, Venezuela produces very little oil due to inefficiency and lack of investment.
Hugo Chávez´s Government was very fortunate to begin with extremely high oil prices. The political crisis during said former Venezuelan President his mandate led many businessmen to take their money out of the country. Then, to prevent the flight of capital, exchange control was imposed; that is, the purchase of US dollars was restricted.
Due to the collapse of oil prices, the model implemented by Chavez could not be sustained. Without oil money, the massive public expenditure of the current Venezuelan Government has created an amazing hyperinflationary environment. The price of the US dollar rises in the black market almost every day and the population uses that currency as a reference to set prices. In recent months, current US dollar bills have been used more as a medium of exchange for reasons of convenience.
Bitcoin as an Alternative
It is a fact that, as a consequence of the low electricity cost in Venezuela, mining has become relatively popular in certain groups. However, not all Venezuelans seek refuge against inflation in Bitcoin. This theory arises from the volume data recorded on the LocalBitcoins platform. A minority does buy Bitcoin to invest, but Venezuelans’ natural refuge against inflation remains the US dollar. Large numbers in LocalBitcoins are achieved because Bitcoin is used as a bridge to obtain US dollars within the black market, which is commonly called the Bitcoin dollar.
Far from what can be believed, the exchange control rather the crisis is Bitcoin’s best friend in Venezuela. Bitcoin is self-control and freedom beyond monetary stability, so it is natural to use it to cross borders.
By Alexander Salazar