It is never easy to talk about Venezuela objectively, because there is so much unknown. In general terms, the data is not reliable, the anecdotes are often very contradictory and the opinions tend to be highly biased. The healthiest thing is always to listen with a lot of skepticism. Because there are many conflicting narratives circulating at the same time. And all sides tend to distort reality to further their agenda. Well, it’s not easy.
The dollar in Venezuela is the unit of account par excellence. People save in dollars, invest in dollars, spend in dollars, and think in dollars. In fact, when they pay in bolivars, the national currency, they do so thinking of dollars. In Venezuela, there are many forms of payment operating simultaneously. You can pay in bolívares in cash. You can pay in cash dollars. You can pay by bank transfer (national bank). You can pay by bank transfer (international, zelle, Panama, etc.). You can pay by debit card. And you can also pay in crypto. In many cases, the mixed system is involved. That is, it is paid in a form of payment. And the change can be returned in another form of payment, for example.
Now, there are a plurality of forms of payment. But there is also a plurality of rates. In the country, there is exchange control. But, at the same time, it is a practically dollarized country. In other words, in practice, the gray economy is much larger than the official one. We have an official change. What is commonly called the Central Bank rate. And we have a parallel change. But there are several types of parallel changes. And, to make matters worse, these rates can vary in the different private pages that serve as a reference. The rate at the border with Colombia is not necessarily the same as the rate in Caracas. And the rate on Localbitcoins and Binance P2P is not necessarily the same as the rate for wire transfer.
The “bitcoin dollar” is basically the dollar according to the Localbitcoins and Binance P2P platforms.. These exchanges are not registered, but are tolerated. In other words, the authorities turn a blind eye. In part, because of its importance for the parallel market. Many traders use Bitcoin as a bridge for buying and selling dollars. That way, perform imports. Many people rely on these markets to send remittances. And many people in the gig economy also rely on these markets to move money from one form of payment to another.
The Central Bank of Venezuela frequently injects millions of dollars into the foreign exchange market to stabilize rates. Sometimes the rate shoots up and the Bank must carry out emergency interventions. At these junctures, the volume in the P2P market increases, because many opportunities for arbitrage arise.
Why is a BigMac so expensive in Venezuela? Because the dollar rate is kept artificially low due to interventions. Venezuela has suffered a great exodus in recent decades. What has hit your job market. The traditional business community has stopped investing due to political instability. And the price of oil has dropped a lot since Chavez’s death. Consequently, national production has plummeted dramatically. However, there are dollars in circulation thanks to remittances, government injections and some businessmen who have decided to invest (trade and services sector) in the country. All this creates a rather peculiar situation. In fact, dollar inflation in Venezuela is higher than inflation in the United States. And we owe that largely to the dynamics of the foreign exchange market and low national productivity.
Due to various maneuvers and tricks, the dollar rate has gained some relative stability over the past year. It could be said that the country’s dollarization is largely responsible. In other words, doing business is much easier in dollars. And the population is now much more knowledgeable about foreign exchange issues. Now all economic and social strata are managed in dollars. Debts are created in dollars. Salaries are set in dollars. And the prices are marked in dollars.
In Venezuela, many bitcoiners have adopted, without much modification, the narrative of bitcoiners from other places to talk about the Venezuelan reality. A copy and paste. In fact, they already speak like American libertarians and defend all the idiosyncrasies at face value. This is largely due to the influence of social networks. The matter begins with the intention of increasing followers. Then, an identity is adopted and the discourse is imported.
Now, the Venezuelan reality and the role of cryptocurrencies in it is an extremely complex matter. In other words, this is not about a Californian with libertarian ideas promoting a monetary insurrection. In my opinion, the Venezuelan case is different. In Venezuela, Bitcoin and the dollar are not rivals in a political fight. In fact, Bitcoin is one more instrument in the struggle for survival in a country submerged in an extremely complex crisis.
Who are the traders more active in the P2P market? Libertarians looking to build a new world? No. Not in most cases. At Localbitcoins and Binance P2P we meet Chinese merchants, Arab merchants, remitters, arbitrators and the gig economy making convenience exchanges. Is the volume of transactions high? Yes. This is a market dominated by the moneychangers of the foreign exchange market.
I know perfectly well that many of the new libertarians in Venezuela are not going to be very happy with this perspective of mine. Surely, they prefer that I repeat like a parrot the speech that we are taught on Twitter. That’s valid. But this is not a report. This is an opinion article. I try to be as objective as possible. However, it is obvious that there is a lot of subjectivity in what is said. I write what I see. The reader does well to consider what is written as the author’s point of view and nothing more.
In short, electricity (almost free), the gig economy, emigration and the parallel foreign exchange market have combined to promote a vibrant bitcoiner community in Venezuela. Bitcoin is more utility than politics in this South American country.
If the decisions of the Federal Reserve of the United States have an effect on the price of Bitcoin internationally, the decisions of the Central Bank of Venezuela exert a great influence on the volume of activity of the P2P Bitcoin market within the country. The volatility, generated with these injections of dollars, creates arbitrage opportunities for many bitcoiners (“lechugueros”) who earn their bread in the foreign exchange market. This is our amazing universe. Not everything is what it seems. And not everything that is said is true.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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