I very much enjoyed this last article of yours about the unexpected relationship between the Venezuelan crisis and cryptocurrencies.
I have two questions for you: 1) you do explain it in the article, but why are cryptocurrencies gaining popularity, while the good old US dollar seems to be doing pretty fine, too. In terms of usability, there is no doubt which is superior, and it is also arguably more reliable. 2) Do you think the current oil crisis in Europe will have an effect on the Venezuelan situation? They might well benefit from the rising oil prices and demand for our beloved fermented-dead-ancestors soups.
I'll be excitedly waiting for your response! Keep up the good work!
Thank you very much for the kind words and thoughtful questions!
Since I don’t live in Venezuela, please note that the answers to your questions below are best guesses. Anyway, here is my stab at it.
1) The US dollar is the informal “official” currency in Venezuela, with as much as 95% of commercial establishments using the dollar.
It seems the Bolivares are near impossible to use when a mere $1 requires wads of cash (780K Bolivares).
However, due to the US sanctions, Venezuela’s foreign reserves may be limited. Hence people cannot open a bank account in dollars, and I am guessing that there is a high “conversion” cost to the dollar.
Since the dollar is the official currency, citizens had no choice but to live with the limited and high conversion costs.
I think this is where Reserve offers a compelling product by creating a digital currency, the Reserve Dollar (RSV), “that maintains 1-to-1 parity with the US dollar (highly stable relative to the Venezuelan Bolívar), and a mobile app that makes it easy to store money in RSV, get paid in RSV, and pay for things with RSV (either at the thousands of merchants that now accept RSV or by converting RSV into bolívares within seconds).” https://reserve.org/about/
You are right; it will be ridiculous to bet your farm on Bitcoin and Ethereum with the volatile prices. (I think some hungry with a high-risk appetite may use these coins.)
But if RSR is maintaining parity with the US dollar, and you can easily convert within the app, it seems like a compelling financial system.
One of my favorite travel Youtubers, Drew Binsky, has an interesting video where he tries to convert $100 into Bolivares in Venezuela.
Another factor may be the lack of mental resistance to using cryptocurrencies for Venezuelan citizens.
The Venezuelan government introduced their cryptocurrency, Petro, and citizens had to use it for certain transactions, so I think the literacy is higher than in other countries. For instance, I live in Japan, but most citizens have never transacted anything with crypto, and with the aging democracy, it seems like a near impossible feat.
2) I think you are absolutely right; the Venezuelan government has benefited from the current surge in crude oil prices.
It seems their economy is growing at the fastest pace in 15 years.
I think the next significant movement in Venezuela can be if the US eases sanctions so that they will be able to invest in more infrastructure, etc.
Dear Sam,
I very much enjoyed this last article of yours about the unexpected relationship between the Venezuelan crisis and cryptocurrencies.
I have two questions for you: 1) you do explain it in the article, but why are cryptocurrencies gaining popularity, while the good old US dollar seems to be doing pretty fine, too. In terms of usability, there is no doubt which is superior, and it is also arguably more reliable. 2) Do you think the current oil crisis in Europe will have an effect on the Venezuelan situation? They might well benefit from the rising oil prices and demand for our beloved fermented-dead-ancestors soups.
I'll be excitedly waiting for your response! Keep up the good work!
Yours truly,
Johnny
Hi Johnny,
Thank you very much for the kind words and thoughtful questions!
Since I don’t live in Venezuela, please note that the answers to your questions below are best guesses. Anyway, here is my stab at it.
1) The US dollar is the informal “official” currency in Venezuela, with as much as 95% of commercial establishments using the dollar.
It seems the Bolivares are near impossible to use when a mere $1 requires wads of cash (780K Bolivares).
However, due to the US sanctions, Venezuela’s foreign reserves may be limited. Hence people cannot open a bank account in dollars, and I am guessing that there is a high “conversion” cost to the dollar.
Since the dollar is the official currency, citizens had no choice but to live with the limited and high conversion costs.
I think this is where Reserve offers a compelling product by creating a digital currency, the Reserve Dollar (RSV), “that maintains 1-to-1 parity with the US dollar (highly stable relative to the Venezuelan Bolívar), and a mobile app that makes it easy to store money in RSV, get paid in RSV, and pay for things with RSV (either at the thousands of merchants that now accept RSV or by converting RSV into bolívares within seconds).” https://reserve.org/about/
You are right; it will be ridiculous to bet your farm on Bitcoin and Ethereum with the volatile prices. (I think some hungry with a high-risk appetite may use these coins.)
But if RSR is maintaining parity with the US dollar, and you can easily convert within the app, it seems like a compelling financial system.
One of my favorite travel Youtubers, Drew Binsky, has an interesting video where he tries to convert $100 into Bolivares in Venezuela.
https://www.youtube.com/watch?v=9RvNNJMpb7Q
Another factor may be the lack of mental resistance to using cryptocurrencies for Venezuelan citizens.
The Venezuelan government introduced their cryptocurrency, Petro, and citizens had to use it for certain transactions, so I think the literacy is higher than in other countries. For instance, I live in Japan, but most citizens have never transacted anything with crypto, and with the aging democracy, it seems like a near impossible feat.
2) I think you are absolutely right; the Venezuelan government has benefited from the current surge in crude oil prices.
It seems their economy is growing at the fastest pace in 15 years.
I think the next significant movement in Venezuela can be if the US eases sanctions so that they will be able to invest in more infrastructure, etc.
Let’s see if Biden warms up to this idea!
You can read more here: https://www.bloomberg.com/news/articles/2022-06-30/venezuela-economy-seen-growing-most-in-15-years-as-oil-flows.
I hope you have a great weekend, and thanks again for the thoughtful questions!