Venezuela Replaces National Currency With Bitcoin

In a fascinating move Venezuela, which has been 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 to bitcoin instead.

Venezuela, Peace, Hand, Nation, Background, Banner

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, a toilet roll 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.

Thing is that I’ve seen this in Zimbabwe and other countries, with Weimar Germany in the 1920s being the one that most point 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 3 times its percentage rate of August where it was at 120%.

I would hate to live in a country that faces this issue, but equally wonder how you stabilise an economy in freefall? Well, first thing to recognise 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.
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William K. 1 week ago Member's comment

Very interesting. Of course, with a few changes Bitcoin could become a readily traceable currency, allowing the government to watch exactly what is spent and where it is pent. Privacy might become an obsolete concept. How would THAT play???