Buckling under hyperinflation, economic sanctions and an anemic and scarce currency, Venezuela has gotten inventive.
Entire neighborhoods have started printing their own money. Bartering sites have proliferated across the web. And the troubled South American nation has embraced cryptocurrencies such as Bitcoin and Ethereum with zeal.
Now the socialist government is jumping into the action, launching the world’s first state-backed cryptocurrency, the Petro, this week.
President Nicolás Maduro has been touting the Petro as an economic silver bullet, capable of loosening the noose of U.S., European and Canadian sanctions, and taming the world’s highest inflation (which exceeded 2,600 percent last year, according to the National Assembly).
“Venezuela is at the vanguard of cryptocurrencies, at the vanguard of technology and the economy,” Maduro said Tuesday, as he announced the currency was open for “pre-sales.” “We have taken a great step into the 21st century. … Our country has launched the first official cryptocurrency in the history of the world.”
The government claims the Petro is backed by crude oil reserves and that when it’s made available to the wider public in March, it can be used to pay taxes, buy gas from stations along the border with Colombia, and pay consular fees at embassies abroad.
Economists remain skeptical, saying any financial system requires a degree of investor trust that many may find hard to muster in this case.
“Why anyone would pay money to buy a “cryptocurrency” from a country where the existing currency [the bolivar] that the country is managing — which is backed by the country’s full faith and credit, including the largest oil reserves in the world — is devaluing at a rate of 50 percent a month, on top of creating the highest inflation in the world, is a mystery to me,” Russ Dallen, with Caracas Capital, a brokerage, wrote to his clients Wednesday.
In addition, the country’s opposition-controlled congress has declared the Petro illegal and the U.S. Treasury Department has warned American investors that accepting it might violate international sanctions that have been imposed on Venezuela.
Given those hurdles, the Petro is unlikely to produce the kind of revenue that would solve “the government’s dire cash-flow situation,” Eurasia Group, a New York-based consultancy, said in a report. “Likewise, there are few incentives to use the [Petro] as a means of exchange, which means it is unlikely to serve as a credible substitute for the bolivar and therefore help to rein in hyperinflation.”
Even so, Maduro said that in the first 20 hours after the Petro was launched, the government received about $735 million dollars in pre-orders. “We’ve started big,” he said.
Dallen called that claim “dubious.”
For many in Venezuela, the new currency is just another symptom of the economic crisis, and a sign that even the government has lost faith in the bolivar.
As inflation decimates purchasing power, the bolivar is trading at 230,338 to the dollar on the black market, according to the data-tracking site Venezuela Econ — a 98 percent devaluation from a year ago.
At that rate, the largest denomination bill, the 100 bolivar note, is worth less than a cent. And cash itself has become a hard-to-find commodity.
It’s no surprise that Venezuelans have embraced homemade money and cryptocurrencies, said John Villar, a crypto entrepreneur who was an early adviser on the Petro.
“People will do whatever is necessary to protect themselves from the economic downturn we’re going through,” he told the Miami Herald shortly after the Petro was first announced in December.
El Garage Birra Jardin, a microbrewery and bar in Caracas, began accepting cryptocurrencies in September, despite the wild swings in Bitcoin prices.
“For other types of businesses [outside of Venezuela] the volatility of cryptocurrencies might seem insane,” said one of the company’s owners, Victor Querales. “But it’s no riskier than accepting bolivars, which can devalue, 10, 12, 15 percent in a day.”
Querales said Venezuelans have learned to spend their cash as quickly as possible before its purchasing power erodes.
“It’s hard for anyone to understand how bad our inflation is, unless you’ve lived through it yourself or have been to Venezuela,” he said.
There are also low-tech solutions to hyperinflation.
Late last year, a Caracas neighborhood called El Panal began issuing its own notes called Panales. The money is backed by a community “reserve” of rice, beans, minerals and other goods.
Salvador Salas, one of the people behind the idea, said the unusual idea of crafting their own currrency came out of the pressure of inflation — and because people couldn’t find enough bolivars to buy food at the local market.
“We were forced into this by the state of the national economy, the lack of cash and the increased inflation,” he said. “We had to rush the launch of the Panal.”
Salas said the Panal is being carefully regulated so that it won’t have the same problems as the bolivar.
“We are not going to print any money without backing,” as Venezuela’s Central Bank is doing, he said.
And then there are those who are going cashless altogether. On Facebook, Instagram and WhatsApp, there are dozens of groups dedicated to swapping goods.
On Wednesday, on a Facebook group called “Super Anti-Bachaqueo Truekes,” or, roughly, “Anti Price-Gouging Barter,” a woman was offering a bag of sugar for coffee, flour or butter. Another user was offering a Casio pocket calculator for “any basic food product.”
Whether the Petro ends up saving the economy — or being a footnote in Venezuela’s economic decline — remains to be seen.
But Maduro is counting on a crypto-boost as he seeks reelection on April 22.
“Let’s feel proud of the birth of the Petro,” he wrote on Twitter Wednesday. “In the coming months the people will have a date with prosperity.”
Follow Jim Wyss on Twitter @jimwyss