A currency reform is planned in Venezuela. Meanwhile, Bitcoin is becoming increasingly popular in the country.
If you don’t understand inflation, just remove a few zeros from the currency. But the Venezuelan central bank has decided on exactly this move. The central bank of the South American state wants to remove six zeros from the banknotes from October. So a million bolívar becomes a bolívar, the equivalent of about 0.25 US dollars.
What may seem obvious at first glance is just wasted in the end. Even the central bank is not pursuing the goal of stopping galloping inflation with this move. One only wants to “facilitate its use”, so the monetary authorities in a statement. But what can it do? The fact is that Venezuela has been paying by weight for some time. Banknotes are no longer counted, but weighed. In September 2018, the official exchange rate of the Bolívar soberano, as the currency has been officially called since the 2018 reform, to the US dollar was around 1 to 3,258,010.
Venezuelans, however, are already used to currency reforms. The last time the central bank made such a cut was on August 20, 2018. At that time the Bolívar soberano replaced the completely devalued Bolívar in a ratio of 1: 100,000. With moderate success: just a week after the reform, the new currency depreciated around 40 percent against the US dollar, and since then it has been several hundred thousand percent – even according to official figures.
For many Venezuelans, it is already certain that the new currency will share the same fate. Because the government has done little to counter the underlying problems that lead to monetary devaluation in the first place. Oil exports continue to decline; imports, however, are increasing. As a result, what is missing is enough US dollars in the country to build the economy on a reliable currency. That would have been legal for a long time. Since 2019, dollarization in the country has been initiated by President Maduro himself. Since then, prices have generally been expressed in US dollars anyway.
Bitcoin in Venezuela
Of course, Venezuela is also a popular example of a possible application of BTC among Bitcoiners. And indeed: The crypto currency is experiencing brisk demand in the crisis-ridden country; the exponential growth in trading volume on Localbitcoins, a peer-to-peer trading platform, speaks for itself.
But the regime does not want to give up its currency without a fight. After all, Venezuela had repeatedly announced that it would launch a digital version of its fiat currency. Since then, however, one has been waiting in vain for the Bolívar Digital. But now the time has come: In October this year, the central bank finally wants to introduce its CBDC.
Whether Bitcoin or digital bolívar: In the end, it doesn’t work if there is a constant power cut in the country.