In an exciting move, Venezuela, a basket-case economy ever since Hugo Chavez died in 2013, has dropped their national currency (the bolivar) and any ties to the US dollar and decided to link their national currency bitcoin instead.
This follows years of hyperinflation where the bolivar – both the old and the new one – became worthless.
The result is that the society moved from dealing in money to dealing in barter, preferring to receive a loaf of bread, toilet rolls, and a bag of sweets for a day’s work than a currency that in the morning was worth $1 and in the evening was worth 1 cent.
That’s the nature of hyperinflation.
The thing is that I’ve seen this in Zimbabwe and other countries, with Weimar Germany in the 1920s being the one that most points at, and the characteristics of hyperinflation are:
- Hyperinflation is extreme or excessive inflation where price increases are rapid and out of control.
- Most central banks (such as the U.S. Federal Reserve) target an annual inflation rate for a country of around 2% to 3%.
- During periods of hyperinflation, a country experiences an inflation rate of 50% or more per month.
- Venezuela, Hungary, Zimbabwe, and Yugoslavia have all experienced periods of hyperinflation.
After the Beirut blast in Lebanon, this is the latest country to move into hyperinflationary times.
Lebanon’s inflation rate reached a high 365% [in November 2020], which is three times its percentage rate of August, where it was at 120%.
I would hate to live in a country that faces this issue, but I equally wonder how you stabilize an economy in freefall? The first thing to recognize is that hyperinflation is often not a homegrown issue but an issue that arises through trade wars and barriers between demand and supply. This is well articulated in this Quora response, which concludes:
The ways to fight [hyperinflation] are:
- Never take foreign loans denominated in foreign currencies – always denominate your loans in local currency.
- Never have sanctions placed on your exports.
- When your trade goes into deficit, create import barriers and protect local markets
- Aid in exports, for example, by creating business development parks like South Korea and Japan did before their booms.
- Require exporting companies to exchange their export profits to local currencies at a fixed rate like China is doing, and save the external currency proceeds as a defensive buffer against aggressive trading partners.
In Venezuela’s case, which has been in the news recently, dealing with the issue requires that people understand that this is as much something the US did to them as something they did to themselves.
Therefore, bearing in mind that Venezuela is in this position due to insufficient domestic policy and a significant squeeze from the USA, it is unsurprising that they are trying to regenerate.
They’ve tried it once before by redenominating their currency, and now they’re trying it again by linking to a currency that Venezuela perceives more stable than their own, more durable than the US dollar, and better than gold.
How will it work? The government has issued a BV Wallet where any Venezuelan can convert their existing currencies – dollars or bolivars – to bitcoin. The money is more stable but still subject to the wild swings up and down of bitcoin’s daily flows. Is this better for the people? Possibly, if bitcoins go up, but how many Venezuelans are happy about digital money? Physical money is no longer welcome, so maybe more than you think.
As a result, I’m renaming Venezuela bitcoinzuela. Do you think it will catch on? After all, if it does, just like Puerto Rico became Puertopia, could Venezuela regenerate to be the world’s crypto capital? Equally, the bigger question might be whether Venezuela is setting a precedent that other nations, starting with Lebanon, will follow. If that happens, you may well find that bitcoin becomes the global currency for international trade happening almost overnight, as predicted in this Citibank research paper.
To receive the latest breaking Crypto News delivered to you, join Cryptonetwork.News Telegram Channel here
No Comment