The perfect storm is brewing in Venezuela. An over reliance on oil export revenue, a falling global oil price, and over a decade of poorly thought out socialist reforms have left the Venezuelan economy with rising inflation and unemployment. The Inflation is of course caused by the printing of money with no actual asset to back its value, once value production in the economy stalled, the inflation started and just accelerated.
Half of the remaining value of the Venezuelan Bolivar ( VEF ) could be destroyed this week if current trends continue.
This is what hyperinflation looks like at street level, shop owners begin to actually weigh money rather than count it, as its quicker. A pack of cigarettes may cost 20 notes. Higher denomination notes are being printed and ATM’s are running out of money in as little as 3 hours.
The Bolivar (VEF) has lost value to the US dollar (USD) significantly since oil revenues dropped, but now a spike in inflation may push Venezuela to crisis point. The official exchange rate from the ‘living in denial’ government has been 10 VEF :USD.
Bitcoin vs VEF
Bitcoin has played interesting roles in this crisis. This is probably the first serious hyperinflation situation during the existence of Bitcoin, and it has been used in many ways. For the IT savvy people, Bitcoin has been a stable and lucrative job with some miners claiming to be making 1200 USD per day. The profitability of Bitcoin in Venezuela has been due to the fact that electricity is virtually free, and electricity is the largest cost associated with bitcoin mining. Bitcoin hasn’t been with out risks, as the government has attempted to crack down on miners, and in some cases corrupt secret police have extorted miners. Bitcoin profits have enabled some miners to escape the country, which they find to be an increasingly dangerous place to live in.
Bitcoin has also played the role as a safe haven from inflation, and a medium of exchange to get around the official exchange rate and official currency exchange rules, VEF:BTC and then BTC:USD. Bitcoin has also been a way to purchase and import scarce commodities from foreign countries, and when we say scarce we mean shampoo, toilet paper and toothpaste; that is how bad it has gotten. So it seems Bitcoin has shown its strength against a currency collapse. As long as there is internet and the rest of the world is not crumbling, Bitcoin could be the most convenient safe haven in a currency crisis. Of course in an economic collapse one should take steps to conceal ones source of wealth, as thieves and kidnappers are all to happy to take it away from you.
Funny but true animation explaining the current monetary policy of the USA.