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Venezuela Limits Daily Withdrawals to $5; Market For Bitcoin?

Last Updated March 4, 2021 4:52 PM
Joseph Young
Last Updated March 4, 2021 4:52 PM

Setting upon the same path as India, Venezuela has announced a major capital control regime. Starting on December 1, Venezuelans are only allowed to withdraw US$5 a day from financial service providers, banks, and ATMs.

For years, Venezuela has been in the midst of a serious financial crisis . Low-income neighborhoods are protesting against the authorities, black market trades are being heavily regulated and even the wealthy population of the country struggle to obtain other reserve currencies and safe haven assets like the US dollars and gold.

A dire financial situation has lead to significant food shortages in Venezuela.

As the economy worsened and Venezuela began to see complete financial turmoil, both the central bank and commercial banks sought out for methods of either delaying or significantly restricting the amount of money an individual can withdraw.

Ultimately, the Venezuelan government passed a legislation to limit daily withdrawals to $5, in a desperate attempt to avoid another bankruptcy.

Venezuelans and its government describe this ruling as a “financial corralito,” which essentially describes any effort of a government to avoid bankruptcy. Local media outlets including El Nacional stated that this specific case is an extreme form of a financial corralito, which will cause drastic financial changes over the next few months.

For the considerable future, Venezuelans will only be allowed to withdraw one 10,000 bolivar bank note a day, which is equivalent to US$5 to finance their families and daily expenses. Since the legislation applies to virtually every other financial services, platforms, and networks apart from banks, it will disallow most if not all Venezuelans from withdrawing significant amounts of cash.

Enter Bitcoin

Due to the government’s crackdown on the country’s black markets and its heavy regulations on US dollars, gold and other assets, it is nearly impossible to obtain valuable and reliable stores of value in Venezuela.

The only remaining option for the Venezuelans to avoid future economic and financial alterations and extreme regulations is bitcoin, which is decentralized and free from the excessive monopoly of the government.

While Venezuela lacks proper bitcoin infrastructure and reliable bitcoin trading platforms, a bitcoin exchange called SurBitcoin still continues to operate within the region, providing alternative methods for Venezuelans to purchase bitcoin.

At the moment, SurBitcoin is seeing a daily volume of 58.2 bitcoin, which is relatively large considering the US$5 daily withdrawal limit of Venezuelans. This means that residents that have kept cash physically in remote locations have begun to purchase bitcoin, which has high liquidity, reliable international exchange rates and incredible portability compared to other alternatives like gold.

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