Venezuelan Economic Crisis: An Outsider's PerspectivesteemCreated with Sketch.

in #economics4 years ago

Everybody is looking for that one investment that will make their wealth explode. The latest such investment is in cryptocurrency. 2018 was an off year for global stocks. After seeing a huge boom, markets corrected about 20% but have gone up by 16% since then. While looking at stock market cycles in South America, I noticed something unbelievable. The IBVC index of the Caracas Stock Exchange (Venezuela) was up by 39,900%! What initially seemed like a data error spiraled into a deep study of the Venezuelan economy and what was happening.

Source: Reddit

Headlines show up in every major news outlet about the condition of Venezuela. A socialist regime is in charge of the country and the economy has been in free fall for quite some time now. Nicholas Maduro has evanesced for major countries. The US, Germany, France, and other powerful nations have recognized Juan Guaido as the real head of state. The stock market catastrophe that was a result of this turmoil is at the heart of the issue. Let’s take a look at this before digging into the economics.

IBVC Volatility – An Investors Worst Nightmare

On the 1st of January 2018, the IBVC index opened at 1263 points and closed at 3668 points. That’s 290% in a single day. On November 1, 2018, the index saw its high at whopping 504,835 points. At first look, this seems like heaven. But understanding the inflation of the money invested in that market will turn this around. As of 2nd November, inflation in Venezuela stood at 1,300,000%. Currency inflation beat the stock market by 1,260,000%. To add salt to the wound, on the 6th of November, the index dropped from the high of 504,835 points to a mere 486 points. This was a drop of 99.9904%.

At this point, the government mandated closing down of all trading institutions including the exchange itself. Nobody was allowed to log on to a trading terminal or place any transactions. This wasn’t a very shocking thing for Venezuelans as they have been witnessing a massive reduction in investment inflows and trading volume since the 1990’s. The volume of LocalBitcoins in Venezuela is 8 times that of the Caracas Stock Exchange. That one line speaks a mountain of detail on the condition of the country’s financial system.

Economic Woes – An Understatement?

There’s a lot more going on in the country so the average citizen is not too worried about what’s happening in the stock market. They are wondering how to feed their families. Food inflation in Venezuela was 315% over a 4 month period. 90% of Venezuelans live in poverty and 60% cannot afford to buy food. Inflation in the country is expected to hit 10 million % by the end of 2019. Yet, there are no visible steps being taken to remedy the situation. Rather, the current regime is resorting to pathetic psychological monetary policy (which we will touch upon in a while).

To provide some background, Venezuela is an oil dependent nation. Their economy is desperately dependent on oil. They have the largest reserves of oil in the world. In case you didn’t know, oil prices have been free falling since October 2018. This has only added to the woes of the country and its people. It has put the government in a tight spot they do not wish to acknowledge or fix. The 2014 flash crash in oil price was disastrous for a country over-reliant on its oil production. They were left with virtually no foreign currency reserves.

Do foreign currency reserves matter? To put it simply, it matters for Venezuela than it does for most other countries. They import 70% of their food out of which 33% is from the USA. The only positives here are political support from Turkey, Russia, and China. This is hardly surprising as they are the 3 countries continuously opposing any Western decisions and attempting to derail American hegemony. China especially sunk billions into Venezuela in the form of exports. Since Venezuela doesn’t have any Yuan or Dollar reserves and China refuses to accept any Bolivar, Venezuela has a huge debt to China which they repay the only way they can; with oil.

Other than pure monetary and fiscal issues, Maduro has resorted to mindless tactics to gain public support. He has aggressively raised the minimum wage in the country to appease the masses. ‘Aggressive’ is not from $10 an hour to $15 an hour. Try 34x in one calendar year. A person who made $1 an hour on Jan 1 2018 now makes $34 an hour. Does that seem like sustainable government policy to you?

Psychological Monetary Policy

In the words of economist Steve Hanke, Maduro has given the Bolivar a ‘face lift’. The government decided to issue a ‘new’ currency called the ‘Bolivar Soberano’ which translates to ‘sovereign Bolivar’.
1 Bolivar Soberano = 100,000 Bolivar. Now, if the logic behind this was just to reduce the amount of notes in the economy, it is still flawed. This is because at 1.3 million % inflation rate, it’s only a matter of time before another ‘face lift’ is needed. How many face lifts will Venezuelan currency receive before the government realizes the distress is from root level economic and policy issues?
Despite this, Maduro did not do this for ease of transactions. He called it a move to kill dollarization in Venezuela and remove the political overlord that doomed their economy. So, instead of using the Bolivar which is tied to the dollar, they are now using the Bolivar Soberano which is tied to the Bolivar which is tied to the dollar. The illusions of reducing 0’s doesn’t change facts.

Source: Reuters

What Has Helped Them So Far?

The answer is exactly what you would expect from a long-time blockchain evangelist; Bitcoin. It isn’t anything that is limited to Bitcoin alone, but the concept of a decentralized currency where power doesn’t lie with an inefficient government. Other payment protocols would serve a purpose too, but Bitcoin is secure, trustable, and has much more adoption than any other decentralized payment protocol. Ground level reports from Venezuela show just how much it is helping families afford basic necessities like food and water. Moreover, it helps people secure their money while leaving the country. Venezuelan border forces are notorious for seizing money from people leaving the country. With Bitcoin, it isn’t possible for them to do so unless they find a hardware or paper wallet while checking the person.
Transactions above $50 render your account frozen until you can explain where the funds came from. Many Venezuelans are resorting to freelancing to access foreign job markets. Freelancers in North​ America are often paid through PayPal, but this isn’t feasible for Venezuelans as the country allows banks to only in a deal in Bolivars. Cryptocurrency in general is turning the tide of people’s fortune by allowing them to secure the value of what they earn instead of allowing a daily inflation rate of 3.9%.
I’ve read the story of a Venezuelan who found freelance work abroad but was unable to receive payment in a stable currency due to stringent banking regulation. He asked the clients to send it to him via Bitcoin and has been able to feed himself and several hungry people simply because Bitcoin’s volatility is nothing compared to Venezuela’s inflation. Moreover, no government or entity can stop you from using Bitcoin unless they physically restrain you.

The Endgame

From a third party perspective, the situation is grim and I genuinely feel for the people of Venezuela who have been forced into such an unfortunate situation due to poor political choices and overreliance on a single commodity for national cash flow. Hopefully, the situation gets resolved, but one thing is for sure – non-government, censorship resistant cryptocurrency can help ease the pain of the citizens of the country. The adoption of cryptocurrency isn’t a choice at this point, it is the only option in order to secure their survival. The problem arises for people who find work within the country; there are several regulations barring them from converting too much Bitcoin ($50 worth of bank transfers is the maximum before the government freezes your account).

Censorship resistant cryptocurrency adoption relies on a multitude of factors. Ultimately, it is up to the people to stand up for themselves and for what they believe is right. As someone who isn’t on the ground level, it is difficult to draw a conclusion as to what the best solution would be. But as someone who is witnessing and assessing the situation from afar, the best option lies in code-backed currency protocol.


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Dear @reverseacid

Such a brilliant (and yet saddening) summary of what is happening in Venezuela. I love how you explained things with very mature and knowledgable approach.

Thank you for sharing this link with me buddy. I will try to help you get some extra traffic to your publication today.


Your support for us is overwhelming, @crypto.piotr !

Thank you for the kind words!

Posted using Partiko Android

Hi @reverseacid

How come you guys were interested in topic related to Venezuela?


Well, when you look at cryptocurrency and what's missing from distributed networks - it's adoption. The public perception in well off countries is that this isn't something that is required as the current system works efficiently.

The situation in Venezuela is a prime example of how something like Bitcoin can help people survive. It highlights the need for censorship resistant money that can run in a seemless way even if an entire country is down?

Moreover, as a economics junkie, this situation has unfolded in an interesting manner. I've wanted to take an in depth look at the cause for Venezuela's fall. At the heart of that research I found just how much their dependence on oil and exported food has put them in a very tight spot

Posted using Partiko Android

Wow @reverseacid

Thank you for your kind and amazing comment. I appreciate it very much.


This post has been revived by steem-forever and will get extra rewards. This happens when a post is upvoted on after the 7 day post life.

Users can simple upvote via continously, so posts can live and earn rewards forever.
Authors can share their links and get upvoted forever.

We hope this will allow everyone to earn more meaningful rewards over longer timeframes than before.

From the perspective of a third party, the situation is grim and I really feel sorry for the people of Venezuela who have been forced into such an unfortunate situation due to bad political decisions and overconfidence in a single product for the flow of national cash

Very correct that appreciation, things in Venezuela are very bad, the crisis is much stronger and we need alternatives like this to withstand the crisis, the problem is that there are a large number of Venezuelans who have access to Bitcoin.

I believe this was the first and largest error. Relying on oil for 90% of country wide revenue

Posted using Partiko Android

You are very right, the economy is not diversified and that brings consequences. Hopefully we will find the course of economic post-economic once again.

I hope the country will get back on track and leave the dictatorship behind. Every country that has only one source of income will have a problem with its economy. Perhaps the future with its technology will bring an advantage for such developing countries. In general, our old western structures are not as dynamic and adaptable as developing countries. they would have to exploit this advantage to gain an economic foothold and generate sales markets. resteem and great work

Great perspective! It's true that emerging markets tend to have more flexible and dynamic structures. But as you mentioned, the current government is the worst of both structures.

Venezuela needs great political reform in order to turn around. I sincerely hope that happens just for the citizens of the country.

Posted using Partiko Android

Wow friend @reverseacid.
Very good summary of what happens in my country I really congratulate and I want to thank on behalf of many Venezuelans that you transmit a reality to all lights, that affects us only to those who are living in the midst of so much injustice, due to the policies implemented by this very well organized group of criminals who occupy positions in the government.

Thank you for your support and feedback @lanzjoseg !

I truly sympathize with the situation Venezuelans are being put through. As someone studying the economic and political situation there, it's tough to believe international assistance hasn't arrived yet. In fact, China is said to be Maduro's biggest ally yet the only reason they align with him is to get cheap oil

The situation is pathetic and I hope the citizens get the justice they deserve

Posted using Partiko Android

Hello my friend @reverseacid nice to be here reading your article..

Everything in Venezuela sounds really sad not just for me, I´m sure for many people around the world...

But now I don´t want to continues taking about the problem in your beautiful Country.. I´m here just to say something to motivate everyone from Venezuela...

You are the architect of your own life, for now you are in a correct place, I mean you are on STEEMIT. This incredible technology is the future and it can be the answer to stop bad governments in the future...

Just keep working well as you are doing everything, but never give up for nothing, if challenges are really heavy, just continues pushing them.. At the end you will be successful ...

If you need something, many people are here to help... I love to help people and that is my motivation...!!

Keep your mind with a strong vision: Motivation ..

It is nice to read a well thought out piece on the problems faced by Venezuela. Crypto definately comes into its own when fiat currancy runs a mock.
I was also glad to read that you feel it is up to the people to sort this problem out.
The intervention if the west, ie. The US and europe will only make things worse.
I point to the Invasions of the middle east as an example. The only interest the west have is Oil.
The people need to keep up the pressure as the the yellow vest protesters are doing in France. The will of the people will in the end prevail. The one tging2 you don't need is bombz2 dropping on your heads.
I am sure one day crypto in some form or other will be the way people trade with each other across boarders without government intervention. When that day comes the world may at last be at peace.

Posted using Partiko Android

It's true. History dictates that foreign intervention doesn't always go down well. But this time, it may be warranted. The condition of the country and the amount of suppression going on is unbelievable. This cannot be allowed to go on. The biggest issue now is that the military is still in support of Maduro's regime.

Posted using Partiko Android

I can hear your desperation and I can see your logic. But if the western governments intervene all they will do is devide up the wealth from the oil and the people will still be suffering. Not one country that was invaded by the US is better off. And of course Russia wont stand by and watch. It could become another Syria. I have no real answer apart from that it is your country. And you are the people to change that by what ever means it takes. Just remember Trump is very close to becoming a dictator the normal rules of democracy don't seem to apply to him.
I do wish you good luck and sincerely hope this can be resolved without foreign intervention.

Posted using Partiko Android

You make very valid points, hard to disagree. Also just to note, the title says "an outsider's perspective". I'm not Venezuelan myself. Cheers and thanks for the support!

Posted using Partiko Android

Hi @reverseacid

I noticed that eventually few quality authors visited your publication after we promoted it. Hopefully you will manage to build some new valuable connections :)


Such an excellent comment @andyjem

I really love the fact that you're so very mature with your responses :)

Enjoy your weekend buddy

Well thank you my friend. I am trying to support your good work. I love a good discussion, as long as it is done in a friendly way. As in any discussion you must ways be prepared to give and take and in the end if you are proved wrong give in gracefully. So lets keep talking 😁.... Have a great weekend yourself Brother...

Posted using Partiko Android

True, instead of draining more bolivars from the economy, he is printing more and true that the sovereign Bolivar is useless. They concentrated a bit too much on oil. They should not have gone for a complete socialist economy. Now they are suffering. I am sure Maduro will be either assassinated or exiled soon by his own people.

It's very much possible given the hostility of people toward him. All that's stopping it is the military's support for him

Posted using Partiko Android

Ya foolish military.

Posted using Partiko Android

I am very sympathetic to their situation.
Because I am also very scared,
Because of my country,
Also possible/because of an inappropriate leader,
Under other country pressure,
Will become like that!
Because many people Are too optimistic,
They don't think mind's people will be an improper leader,
he Will bring the country walk end !
If when things really happen, It’s too late to regret it.

Along with politics, it has a lot to do with their dependence on oil for revenue. They over rely on oil and oil prices have crashed since 2014. Big big reason for this scenario. Again that can be blamed on previous regimes for not taking steps to promote other business activity

Posted using Partiko Android

Hi @reverseacid,

Thanks a lot for this nicely researched article regarding Venezuelian Economy.
Through my project @help.venezuela I've come into contact with some very intersting people from Venezuela. Cryptocurrencies like Bitcoin or even Steem can help people to have a way of recieving and storing value that the government can't confiscate.
At the moment the adoption of Cryptocurrencies is not so developed yet and there is a lot to be done for the venezuelians to see the potential of it.

Cryptocurrencies might be an answer as long as there is a minimum of services provided like stable electricity and internet. Which hasn't been the case lately...

A part from the economical struggle the peole from Venezuela suffer also from intidmidation and violence through the governement and its minons. So even if Cryptocurrencies can bring some help, there still needs to be a fundamental change till the people can live with a minimum of decency.

Best regards,

Hello @achim03

Big fan of your work with @help.venezuela , didn't know you were running it!

I've been speaking to people on the ground level via Twitter just to separate truth from misinformation. Bitcoin has helped them tremendously save value. Despite Bitcoin being so volatile, the price movements are nothing compared to the Bolivar.

As for cryptocurrency usage in general, I believe the answer does lie in censorship resistant protocols like Bitcoin and Stellar Lumens. Using Petro is fairly useless as despite being built on the XEM Blockchain, it isn't decentralized.

On the political front, I believe it is slightly insensitive to say, but only the Venezuelan people can do anything about it. Rising up is not easy, but at this point I feel it's necessary. The beautiful thing about Bitcoin is that the government cannot shut it down or stop its usage. Venezuela is showing signs of a makeshift private economy that pushes the government out of the market.

I hope this situation is solvable and this just may warrant international action

Posted using Partiko Android

You are right about the role of bitcoin in a situation like Venezuela. In the past there were only foreign currencies that could bridge high inflationary situations. However foreign currencies can be limited, confiscated or stolen by governments. Bitcoin and other crypocurrencies can be a tool for people in inflationary countries to store value and also to exchange it for goods. I don't know how many bags full of bolivar banknotes you need to buy bread, if you find bread at all... with cryptocurrencies it seems much simpler.

In this respect, I believe that currencies like steem can play a very important role in such situations. The transactions are free and immediate. You could be with your phone at a cash desk where there is only the steem account name of the shop. To pay you send your steem transaction over partiko and the guy at the cash desk checks whether he got it on his account. Free and quick...

Dear @achim03

I absolutely love reading your comments. There is always something I can learn from them :)

Keep up great work here on Steemit buddy. And enjoy your weekend.

Cheers, Piotr

Thanks for your comment. A nice week-end to you too!

Such an excellent comment @reverseacid

I really love the fact that you're so very mature with your responses :)

Enjoy your weekend buddy

This is more REAL news I have gotten about what is going on in Venezuela than ALL of the news I have seen in the United States. As a former journalist in these parts, I am embarrassed for and with my former colleagues, deeply humbled, and grateful for this information and perspective that you have provided.

Wow, @deeanndmathews

I'm at a loss of words. Thank you for your kind comments, your support truly means a lot!

Posted using Partiko Android

I hope Venezuela economy comes up so her citizens can live better
...supported this post because it was listed on @pifc pimp my post #22

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Thanks for your support @ajorundon !

We very desperately hope for the same thing

Hola, @reverseacid. La situacion de nosotros los venezolanos, es muy delicada y no solo porque tengamos que hacer milagros para sobrevivir, sino que también tenemos que transformar toda nuestra dinámica mental para no sucumbir en una crisis mental, nuestros hijos fuera, nuestros amigos lejos de aquí y toda un suerte de caos, que solo te hace pensar en estar lejos de aqui.

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