Venezuelan Economy: Cash Crunch In A Collapse And The Crypto Plan

In this series, you will look at what life is like for a family man living in a social and economic collapse. The writer of these posts is a middle-class Venezuelan, in a country which has the world’s highest inflation rate at 254.9%. Venezuela is a financial collapse nightmare with extreme shortages of food, riots severe hunger, a crippled Venezuelan economy, crumbling infrastructure, collapsed healthcare system, and a failing government.

The Venezuelan collapse has escalated to a breakdown in social order, putting Venezuela at the top of Latin America’s most homicidal nations. The rate of Venezuelans murdered is now 20 times that of the US.

Here is the second post in a series of updates from the Venezuelan Prepper.

Every kind of collapse has different traits. In our modern world, there is a lot of indications of problems, and often, a lot of information that generally results in the bias does not get to the core of the issue.

The 2008 financial crisis was a good example of that. There were plenty of indications of problems. In Venezuela, there were some indications as well, but the crisis is something barely seen in some other countries, as the Venezuelan economy has particularities of its own. This crisis is partially induced, but a great portion is generated by the sheep mentality and consumerism.

Cost of food in Venezuela

Monthly minimum wage in Venezuela is USD$8. Cost of grocery basket is USD$30.94 Image: CNN Money.

Years ago I wrote down some important alerts that I defined as very important to measure how bad things were going. They were:

  • Deactivation of alternative information websites, in a short period of time, including social networks.(Not happening yet, but the government mafia has closed most of the radio stations not belonging to them)
  • Logically the sudden disappearing of basic staples in the largest supermarkets and major groceries chains. (This was the definitive indication of the real government intentions: depopulation)
  • Sudden and long-lasting power cuts, without any justification.
  • Internet and cellphone signal down for long periods. This has been something constant in Venezuela for over a year.
  • A sudden increase in the news coverage in social media with alarming news (this is logical, but I thought it should be included)
  • Inability to get money out of ATMs, or an increasing difficulty to do it.
  • A sudden increase in crime rates and violence in our immediate location.
  • Large lines in gas stations and fuel price hikes. This leads to stations closing and possible turmoil.
  • Suspicious radio communications being somehow jammed.

Several of this events were appearing, one after another, and with the cash crisis and the food trafficking mafias, that was the final warning. This crisis has generated something never seen in Venezuela (and hardly in any other country as far as I know): different prices for the same articles if paid with cash (cash is very very scarce) and merchants asking for twice the price if paid with debit or credit card.

The Cash Crash Of Venezuelan Economy

Hyperinflation in Venezuela

In Venezuelan markets, money has to be weighed to count its value as hyperinflation sets in.

The cash issue is generating an increase in social stress, as should be expected. People can’t get enough cash to pay for their daily public transport payment, or to get lower food prices by paying in cash. The difference between electronic money and physical cash is 95%. So go figure. If they can’t get to their jobs, they can get fired. It is a cycle, and a downward spiral to oblivion. They sell packages of cash, charging twice or twice-and-a-half their value in bank transfer.

This is happening, and it is one of the practices that is damaging deeply the economy. The authorities just don’t do anything: it is a problem so large, that they are technically unable to mitigate the issue. That is the truth.

If the authorities of any government find a problem so large, and so extended that they know they can not solve, they will ignore it, and avoid all the publicity related to it. They will deny it and dodge it, until they don’t have any other option. The reason is simple: most of the people don’t care about screwing their own customers. It is survival. The importing of many goods is now so  scarce that the prices are dollarized, and there is not enough money paper to make something practical of the economic exchange.

The result is, some people has gone to buy white cheese (our farmers have a tradition of white cheese production since the Spaniard colony times) with some eggs, or some corn, or they trade corn flour for arepas, or sugar, pasta, deodorant, any staple, instead of money. With an inflation around the 1200%, this is logical.

Distrust In The Dollar Leads To Cryptocurrencies

Venezuelan economy is turning to bitcoin as an anti-government currency

With such turmoil in the current economy, some Venezuelans have turned to alternative currencies. Some people have told me they are trading in cryptocurrency, but with the prosecution of people who use cryptos, they band together in very tight trading groups, and are very careful with outsiders.

The Venezuelan intelligence organization has already been getting into people who are mining cryptocurrencies such as Bitcoin, and have had their mining equipment confiscated, and landed in jail. This is so the same police who arrested them can use their equipment to mine Bitcoin for themselves. This has happened several times already.

There is no legal ruling about cryptocurrencies. But, generally speaking, there are no laws in the country except those used to protect the people in power.

Venezuelan economy is turning to bitcoin as an anti-government currency

A Venezuelan Bitcoin mine seized by police in 2017

Something that has made me rethink about the use of cryptos is a very positive feature of these, which is that for a country in disarray, the government can’t control its value. Countries like Venezuela, who have become banana republics because their government has induced rampant inflation via over-printing currency, can get the benefits of such cryptocurrency.

The value of bitcoin changes, for example. But its volatility is not even close to that one suffered by the Venezuelan Bolivar. The people have been forced to use their imagination to be able to survive this cash crunch. Bartering, or paying with working hours or some sort of service is now common. Despite the electricity service being a deficient one, the electricity is so cheap that Bitcoin mining has become a large and profitable activity in the country. It works in the shadows, though. And it has become the main income source for some anonymous family heads, who have decided to risk themselves in mining operations to provide for their families.

How Corrupt Cash Rules The Venezuelan Economy

Cash collected by corrupt individuals who seem to hold the balance of power in the Venezuelan economy. It is subject then to a laundering process, as would be expected from criminals. This money is then being used to buy apartments, houses, luxury cars, and other goods of people who are leaving the country. You see, those people who worked hard for their cars and houses are forced to leave due to the struggling Venezuelan economy. In desperation, they sell their hard earned properties at discount prices.

Venezuelan Economy has led to most stores being looted for food and supplies

View inside supermarket looted out of desperation in Capacho, Tachira state, Venezuela. Photo: Getty Images.

This is how an economy evolves after a financial collapse. Those who are corrupt or greedy will find a way to further themselves. If someone believes that it can not happen in some other country, then they should ask why I take my time to write about this.

The plan to make the currency worthless was executed, and all the problems that generated have even killed people in the resulting turmoils. Our central bank, in an effort to provide some relief, partially at least, tried to introduce higher-denomination bills with a 100,000 bolívares note. These new banknotes are being printed in Europe. The problem with that is the government, dealing with a massive falling oil production as a result of oil industry employees running away from the country looking for a better place to live, simply doesn’t have the needed money to pay for the import of those new notes.

Currency Control Exchange

For those that are not in the know, Venezuela has a severe currency control exchange, something that Hugo Chavez said that he would never allow. Of course, he did it anyway, and that was one of the things that started the poisoning of our economy.

Nowadays, cash is so scarce that it is being saved for real emergencies. The bad news is, you just can’t save so much because what you could buy this week with a package of 100’s notes, will not be able to be bought next week.

The black market of food and supplies is entirely dominated by corrupt military and policemen, banding with the terrible colectivos criminals who have been keeping the barrios under control by fear and threatening. Drugs, food, medicine, and cash are being controlled by these criminal organizations, everything sponsored by the government to keep under control the annoyed population.

There is a theory that the Colombian government is inducing the cash scarcity. If this is true or not, I can not say. But being honest, why would a government sabotage another government’s economy, when all of those people trying to flee away from the problems are going to come across the border? This does not make any sense, I think.

Thanks to the entirely wrong approach to the Venezuelan economy by the government, the Venezuelan people struggle for days to withdraw from the bank as little as 6 cents of the dollar. It is so bad, that some banks cannot offer cash. The ATMs are practically useless. They empty so fast that many times the bank staff does not bother in refilling them once they empty the first time.

A smart move, I think Venezuelans should start a network of same-minded people, and start using cryptocurrencies. Once this effect can be appreciated locally, its influence will spread by itself.

This could be a nice, harmless and transitional way to stabilize the Venezuelan economy. The tools needed would be the information to provide to the people about how cryptos work, and how to use them.

6 Comments

  1. Vladimir

    February 10, 2018 at 8:41 pm

    Thank you for sharing this insider view. A quite troubling perspective…
    In your situation, you may want to have a look at the Tether, which is a cryptocurrency which aims at keeping parity with the USD. Have a look here:
    https://coinmarketcap.com/currencies/tether/

    I haven’t done much research on this matter and what might be the drawbacks of using such currency in the future, but it seems better suited than the other cryptocurrencies to the Venezualian case…

    Wish you the best,
    Vladimir

    • Ben Brown

      February 11, 2018 at 8:47 am

      Thanks for the advice Vladimir!

    • Jose,your writer.

      March 12, 2018 at 9:40 pm

      Vladimir, this is a very important comment, thanks for sharing it. I don´t know what really is going on with the “Petro”, but to me is no more than a fraud to take over whatever USDs they can, in this so called “crypto” that is no more than another money laundering machine. There will be sanctions for those who dare to trade in the petro, and I find this the best solution to avoid corrupt Venezuelan, Cuban, Russian, Chinese gov mafia to launder the money.

  2. Silas Longshot

    February 11, 2018 at 3:51 pm

    Perhaps my ignorance of crypto currencies shows but I see problems with it, in that you need massive computing power, which requires space, machines and electricity, which you describe as spotty. Then assuming one has ‘mined’ a few bitcoins, what shall they be exchanged for? How would the exchange happen? What’s today’s value of bitcoin in the local currency?
    Before a certain African country collapsed, they were printing BILLION unit ‘money’, so that the price of 3 eggs was one billion ‘cash’. Did this because they didn’t have sufficient paper / time / capacity to keep up money manufacturing vs the inflation rate even at the largest denomination of bills they had.

    • Ben Brown

      February 11, 2018 at 4:13 pm

      Hello Silas, you raise some relevant points. However, after speaking with Jose (Venezuelan Prepper) on this, let me explain:
      – Due to the collapse circumstances, Venezuela is experiencing, the minimum monthly wage is USD$8. This is why Venezuelans (if possible) are leaving the country to work for other economies, or seeking online work. If a group of tech-savvy friends can run a Bitcoin operation and earn at least USD$300/month – they’re able to eat. This is of course, balancing out the cost of power over the profit made. If they are able to run effectively, when there is power, they essentially have a residual income.
      – Bitcoin can be transacted into $USD. That is a stable currency, unlike the Venezuelan Bolivar (which is currently valued at USD$.00004)
      – The government did introduce a new note so that they didn’t have to weigh countless amounts of notes. However, the government cannot afford to pay the import costs on any more of the notes to come into the country.
      – At the center of all of this is the country’s mismanaged income which has caused most of the skilled workers to leave Venezuela. Because of this distrust in their currency, residents turn to cryptocurrencies as a way to seek a more democratized form of currency, rather than a government-controlled currency.
      – The issue is, anyone that has been mining bitcoin has been detected through their abnormal power use and authorities have seized the mining equipment. Now the government runs its own bitcoin mines using seized equipment in order to generate an income.

  3. Jose,your writer.

    March 1, 2018 at 10:08 pm

    This is Jose, your Venezuelan Prepper friend tuning up. I want to thank Vladimir about the tether information, I see it is getting close to the total emission intended, and being close to 1 USD, it should be affordable too. We need desperately to stabilize the economy, but the main problem we face is our government mafia: they have become the main promoters of chaos. They need to depopulate the country. I am sure that, as nasty as it may sound, the purpose is that. This said, if we could somehow to get the tether into the economy grid as a currency exchange, instead of the Petro (please stay away of that abomination, it is designed for money laundering from the Venezuela government thieves and anyone trading this will be sanctioned!) it would be a great advantage; I could guess as well that the payments should be almost instant as well. This could be a great proposal for our national assembly, sinking the Petro where it belongs, and I am going to do some research, and find the ways to suggest its application to the National Assembly. Oh by the way our Constitution forbids explicitly to use our reserves as a mean for issuing debt, that is exactly they are doing with the Petro..just for the record.
    Stay safe people!.

Let me know your thoughts on this topic!