Venezuela is still facing an economic crisis that has caused a drastic change in its internal population’s mode of payment. Once hyperinflation reached staggering heights of over 100,000 percent in 2018, the overwhelming majority of Venezuelans turned to the US dollar for safety. They too were looking to cryptocurrencies as a refuge from the increasingly worthless Bolívar.
The hyperinflation crisis has destroyed the Venezuelan economy, making its national currency virtually worthless. Citizens suffered tremendous hardship even in the most basic transactions as prices skyrocketed with no warning. As such, the US dollar has become a dollarization stable and trusted medium of exchange. Today it is widely used and accepted across industries, from retail to service. This shift has allowed individuals to circumvent the pitfalls of their local currency and engage in more predictable financial dealings.
Cryptocurrencies have similarly taken hold among Venezuelans looking to escape rampant inflation. Cryptocurrencies open up new ways to transact and interact online. They provide an independent solution free from government interference and inflationary burdens. Many citizens have adopted popular digital currencies like Bitcoin and Ethereum to facilitate payments and transfers, both domestically and internationally.
Increasing acceptance of the dollar has significantly changed the state of commerce within Venezuela. It’s had a huge, continuing effect on the country’s general economic growth. Merchants and smaller businesses that used to accept only Bolívars are now more and more pricing their wares in dollars. As a result, Venezuela is facing a blossoming dollarized economy that provides a thin veneer of stability as the chaos persists.
Further, the advent of cryptocurrencies has added another, more dangerous dynamic to the financial ecosystem. Our traditional banking system is failing to be sustainable by all accounts. Other currencies can be a refuge for individuals seeking to protect their capital or continue commercial transactions. Online exchanges and other platforms have been created where users can purchase, sell, or exchange cryptocurrencies with one another. This has in practice created an alternative economy within the country.
While these other options provide a much-needed break from the bleak economic environment, obstacles persist. The volatility associated with cryptocurrency markets can pose risks for users, while the reliance on the US dollar exposes the Venezuelan economy to external influences. Additionally, worries about punitive regulations and a future government crackdown on how people use cryptocurrency continue to hang over the space.