Anybody who believes that central banks are essential pillars of economic stability that deserve the untrammeled authority to issue currencies, which they presently enjoy, should take a close look at what’s happening in Venezuela.
Central bankers have tended to dismiss the notion of private currencies as an idea embraced only by techno-libertarian wingnuts (they have invariably described bitcoin as a “store of value” that’s “not yet big enough to threaten the economy."
But in Venezuela, the collapse of the bolivar has forced locals to turn to alternatives like bitcoin and local community-issued currencies with fixed exchange rates. The rapid erosion of the bolivar’s value made everyday transactions like buying groceries and paying cabbies untenable - customers had to pay with large, cumbersome stacks of bolivars that were difficult to transport.
Patricia Laya, a Venezuela-based reporter, tweeted a photo of the 5,000 bolivars - the maximum amount - she was able to withdraw from an ATM in Caracas. They're worth around $0.05. Laya stated that she had waited 20 minutes in line to obtain $0.05 in hyperinflated currency worth little to no value, according to CCN.
Even though bitcoin transactions can take hours - even days - to settle, local merchants have readily embraced the digital currency.
Spent around 20 minutes in line at the ATM this morning to get a max of 5,000 Bolivars. That's about $0.05 pic.twitter.com/F1SxEruhcj
— Patricia Laya (@PattyLaya) December 7, 2017
A Venezuelan student named John Villar said he uses bitcoin more than bolivars because it’s literally the only viable option.
“This is not a matter of politics. This is a matter of survival,” said Villar.
Villar said he has bought two plane tickets to Colombia, his wife’s medication, and paid his employees with bitcoin in the past month. Villar emphasized that he intends to continue utilizing bitcoin like the majority of Venezuelans, according to CCN.
In Venezuela, the majority of the population has lost trust in the government, the central bank and the banking system, which has clearly helped predispose Venezuelans to bitcoin.
In addition to bitcoin, communities are beginning to launch local currencies, the revival of an idea that the late Hugo Chavez became a proponent of late in life where Venezuela would adopt a series of 10 community currencies like the ones currently being issued by pro-government forces.
In one Caracas neighborhood, several shops have started accepting the panal, according to the Associated Press.
The panal, which means honeycomb in Spanish, can be spent in just a few stores. But residents of one neighborhood desperate for spending cash said they welcome the idea proposed by pro-government groups.
"There is no cash on the street," said Liset Sanchez, a 36-year-old housewife who plans to use her freshly printed panals to buy rice for her family. "This currency is going to be a great help for us."
Amid triple-digit inflation and a currency meltdown, there has been a run on cash in Venezuela.
Buying common items such as toilet paper, or paying a taxi driver, requires stacks of the official currency, called the bolivar.
To be sure, not everybody agrees that these alternative currencies are necessary or even helpful.
Jose Guerra, an opposition politician, knocked the idea of an alternative currency, arguing that having multiple currencies could add "monetary chaos" to the ongoing economic crisis. Perhaps Guerra has never been faced with the prospect of either starving or finding an alternative means of procuring food.
Indeed, President Nicolas Maduro inadvertently helped validate bitcoin - even though his government is cracking down on bitcoin miners - by announcing that the country would adopt a national digital currency called the petro, similar to bitcoin, to replace the bolivar. He has offered few additional details about the plan, however.