The people of Venezuela are starving. There is a shortage of food and medicine, says Reuters, while recounting a terribly saddening story of a Venezuelan mother giving away her child. They live on $6 a month. “Just one chicken meal would now burn up half [of their] monthly income.” BBC
The BBC says that “T]his will be a difficult Christmas for thousands of impoverished Venezuelan families, some of whom are now facing genuine hunger.”
Once one of the richest nation in South America, Venezuela has been brought to its knees, seemingly overnight. The sudden fall in oil prices has led to a recession with the socialist government, in trying to prop up the economy by printing money, provoking inflation. Last year, it was 180%, this year the IMF expects inflation to reach a devastating 500%.
SurBitcoin, Venezuela’s most popular bitcoin exchange, values one bitcoin at 2,150,047 Venezuelan money. Google tells me that is worth more than $200,000. That is at the official exchange rate, a complete fiction. The actual market rate values $1 at 4,000 Venezuelan Bolivar, giving bitcoin a price of $537.52.
It used to be much higher, attracting a premium, like in Nigeria which is currently undergoing a similar, though much less acute, economic crisis. There, one bitcoin trades at an all-time high of $1,228.09 in Nigerian money. But, in Venezuela, cash is currently in very short supply. Their government has suddenly, unilaterally, without any apparent due process, just declared 100 Venezuelan Bolivar notes (worth around two cents) to be completely worthless.
It is a move that follows that of India, a desperate attempt to rein in inflation by, in effect, virtually burning much of the country’s wealth, but while in India temporary chaos subsided following the provision of replacement notes, Venezuela plunged into lootings, with a teenage boy shot dead according to the FT. That’s because replacement notes have not yet arrived, turning a terrible situation into absolute desperation.
Yet we hear not of any aid efforts by Venezuela’s richer neighbors, especially Americans, some of the wealthiest people on earth who give $6 as a tip after meal. That might be changing. Some, in one of bitcoin’s popular public forum, are organizing with the aim of sending food and bitcoins to aid the starving people of Venezuela. If they can pull it off, they may attract attention and assistance from other humanitarian groups, but can bitcoin really assist?
The digital currency has the unique quality of not requiring a bank account. A smartphone, which is usually in plentiful supply in developing nations, is all one needs to join a global payment network and operate in global trade. Unlike state currencies, Bitcoin’s value cannot simply be declared worthless, nor printed away. Having no central control, it operates as nothing more nor less than a scarce piece of code that no one else can copy, but can be easily transferred to anyone, anywhere, without any intermediary.
However, bitcoin still requires much infrastructure. Firstly, bitcoin transaction fees are currently far too high for developing nations, the main beneficiaries of this global payment network. Lightning promises to assist, but until it is launched, they’d be better off converting it to ethereum through Shapeshift which currently has as good as no fees.
Secondly, while smartphone wallets would probably be acceptable for small amounts, a hardware wallet is far more preferable for long term storage. Those on offer currently, such as Trezor and Ledger, are far too expensive. Although one can use a paper wallet, attempts to distribute them at scale in a manner whereby the private key is scrachcard hidden have found some regulatory resistance. Attempts to create a bitcoin debit card have not found much success, but methods which convert bitcoin on the fly, making them acceptable to almost all merchants, may have wider appeal.
The bigger consideration may be the volatility of bitcoin’s price, but in hyperinflating countries, such volatility may seem minor. However, other more stable currencies, such as the dollar, if available, may find wider acceptance.
I have never been to Silicon Valley, but some say there are pockets there, small areas, where you can use bitcoin for everything, illustrating in a real-life manner that it is very much possible for bitcoin to operate as a currency. We further hear of individuals who solely use bitcoin for everyday needs. It can, therefore, replace the Venezuelan Bolivar, but it is a chicken and egg question. The first to adopt it for commerce see little advantage, but further adoption amplifies network effects to the point where its full benefits are enjoyed.
For Venezuela, it may be too late to fully assist, but very much the right time for bitcoin awareness to increase and the first pockets of adoption to begin so as to prevent or at least limit the erosive effects of future monetary mismanagements which are bound to happen for a central entity cannot possibly manage money through interest rates, printing, or other mechanisms, without mismanaging it, according to Friedrich Hayek:
“The past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process…only competition in a free market can take account of all the circumstances which ought to be taken account of.”
Image from Shutterstock.