Venezuelans are struggling to carry out basic transactions like purchasing food as the value of their currency, the bolivar, has plunged against the dollar amid the country’s worsening economic collapse.
According to Reuters, over the past year, Venezuela’s currency weakened 97.5% against the greenback: Put another way, $1,000 of local currency purchased in early January would be worth just $25 now. The annual inflation rate in 2017 could reach $2,000. Though at least one other estimate puts the real rate of inflation closer to 2,800%.
Of course, President Maduro has blamed websites like DolarToday – which publishes the closest thing to an official black-market rate by surveying clandestine exchanges in Caracas and other cities – for the spread of black-market activity, part of a conspiracy organized by Washington and his local political opponents to force him from power.
One of the unintended consequences of the bolivar’s collapse has been a social experiment of sorts in the use of digital currencies: As we noted back in October, as many as 100,000 people are now mining digital currencies in Venezuela, defying a government crackdown that’s seen many of them thrown in prison.
But for those who can’t or haven’t resorted to transacting in bitcoin, an increasingly scarce supply of dollars is creating intractable problems for millions of Venezuelans, Reuters reported.
For many, simple purchases like a new tire for their car are simply out of reach.
There was no way Jose Ramon Garcia, a food transporter in Venezuela, could afford new tires for his van at $350 each.
Whether he opted to pay in U.S. currency or in the devalued local bolivar currency at the equivalent black market price, Garcia would have had to save up for years.
Though used to expensive repairs, this one was too much and put him out of business. "Repairs cost an arm and a leg in Venezuela," said the now-unemployed 42-year-old Garcia, who has a wife and two children to support in the southern city of Guayana.
"There’s no point keeping bolivars."
A practice that was initially adopted by shops catering to wealthy and middle-class Venezuelans is spreading to merchants selling everything from foodstuffs to medicine. Food sellers, dental and medical clinics, and others are starting to charge in dollars or their black-market equivalent - putting many basic goods and services out of reach for a growing number of Venezuelans.
"I can’t think in bolivars anymore, because you have to give a different price every hour,” said Yoselin Aguirre, 27, who makes and sells jewelry in the Paraguana peninsula and has recently pegged prices to the dollar. “To survive, you have to dollarize."
The socialist government of the late president Hugo Chavez in 2003 brought in the strict controls in order to curb capital flight, as the wealthy sought to move money out of Venezuela after a coup attempt and major oil strike the previous year.
Oil revenue was initially able to bolster artificial exchange rates, though the black market grew and now is becoming unmanageable for the government.
Still, President Nicolas Maduro has maintained his predecessor, the late Hugo Chavez’s policies on capital controls, even as the spread between the official rate - some 10 bolivars per dollar - and the black market rate - of around 110,000 per dollar - is now huge.
The trend is angering Venezuelans who don’t have access to dollars. As Reuters pointed out, it also dampened Christmas celebrations this year due to a shortage of pine trees, toys, meat, chicken, cornmeal…the list goes on.
While sellers see a shift to hard currency as necessary, buyers sometimes blame them for speculating.
Rafael Vetencourt, 55, a steel worker in Ciudad Guayana, needed a prostate operation priced at $250.
“We don’t earn in dollars. It’s abusive to charge in dollars!” said Vetencourt, who had to decimate his savings to pay for the surgery.
Most Venezuelans, earning just $5 a month at the black-market rate, are nowhere near being able to save hard currency.
"How do I do it? I earn in bolivars and have no way to buy foreign currency," said Cristina Centeno, a 31-year-old teacher who, like many, was seeking remote work online before Christmas in order to bring in some hard currency.
While many have begun mining bitcoin, purchasing the digital currency is also out of reach for many, since they would need to first convert their bolivars into dollars.
As the bolivar has continued to plummet, some communities have begun experimenting with alternative currencies that derive their value from a limited supply. In one Caracas neighborhood, several shops have started accepting the panal, one such alternative currency.
With the supply of dollars drying up since Maduro announced that the state-owned oil company would no longer settle payments for oil exports in greenbacks, it’s likely only a matter of time before more of these alternative paper currencies start springing up.
That is, unless the price of oil – which broke above $60 today – makes a surprising and altogether unlikely comeback.