Bitcoin to the Rescue in Venezuela?
Venezuela may not have much milk or toilet paper these days, but it does boast some of the latest cutting edge financial technologies. Bitcoin, the virtual currency system that sidesteps traditional banking intermediaries to conduct financial transactions, is increasingly becoming the payment method of choice for a group of Venezuelan entrepreneurs. Is this a vote of confidence for virtual currencies in developing countries? Or desperate times breeding financial innovation in a crumbling economy? Perhaps a bit of both.
Premise, a San Francisco-based startup that crowdsources economic data, is now paying its contributors in Venezuela almost exclusively in bitcoin. In September 2015 Premise reported that it was paying just 10 percent of its contributors with the virtual currency. That figure has since shot up to more than 90 percent, with payments now being made through Coinbase, a popular “wallet” for bitcoin users.
By no coincidence the uptick runs parallel to the ongoing meltdown of Venezuela’s economy. The country depends on oil sales for around 95 percent of its export revenue. So plunging oil prices and massive public debt, financed largely by the government printing money, have sent the Venezuelan economy and its currency, the bolivar, into a virtual free fall.
As funds have dried up, the government of President Nicolas Maduro has imposed stringent price controls and restricted foreign currency transactions. Shortages of staple goods are now common throughout the country and a black market for the bolivar has flourished. Officially the government has fixed the value of the currency at 10 bolivars per dollar but the black market exchange rate recently topped 1,000 bolivars per dollar, according to local reports.