Strolling the aisles, it didn’t take Eugenia Alcalá long to pick out her weekly grocery items: rice, beans, bread and meat. That’s about all that’s available in Caracas, the capital of Venezuela.
Once she reached the cashier, it would be another 40 minutes before she could leave the store.
“Yesterday the account was 200 million [bolivars], but the point of sale only permitted 20 million bolivars per transaction,” Alcalá said. “So I had to pass the debit card 10 times. Each time it takes up to five minutes.”
It took five cards to complete the 10 transactions, and not because she didn’t have the money. Banks simply didn’t want to turn it over.
As the Latin American country plunges ever deeper into its long-running crisis, Venezuelans are looking for an answer, with its flailing economy set to contract by more than 10% this year, bringing the total decline to about 45% in the past four years, according to the Center for Strategic and International Studies in Washington, D.C., a nonprofit policy-research organization.
As Venezuelans struggle to obtain everyday needs, they are turning to a curious asset class to alleviate price pressure: cryptocurrencies.
“Crisis led us to this situation,” said José Rodríguez, owner of Nómada Food Truck in Caracas. The situation is the adoption of digital currencies, an innovation that Rodríguez said is getting his business through the economic crisis.
Digital currencies such as bitcoin BTCUSD, -0.75% ether ETHUSD, -2.22% and litecoin entered the mainstream in 2017, as investors — speculators, mainly — pushed their values higher by as much as 1,000%. As a result, digital currencies in mature economies sometimes have been derided as get-rich-quick schemes with no intrinsic value.
The nascent technology that libertarian-leaning evangelists, including entrepreneurs Peter Thiel and John McAfee, tout as packing the potential to reshape the global monetary system has yet to provide a significant use case in the developed world. High transaction fees, volatility and security flaws have, to date, scared off companies and consumers.
However, in emerging and frontier nations in Latin America and Africa, cryptocurrencies are making inroads.
In Venezuela especially, cryptocurrencies are enabling local businesses to own, transact and store something of value that isn’t at the whim of an unstable government, which devalued the bolivar by 95% on Aug. 20.
In Africa, cryptocurrencies are aiding cross-border payments, helping businesses expand across the fastest-growing continent by population.
Buying and selling cryptocurrencies anywhere in the world “has universal value,” said Jill Carlson, an independent consultant in San Francisco who has worked on projects in developing countries. “It’s digital, its p2p [peer-to-peer], and it doesn’t rely on a banking system or government. You can argue that, in a place like Venezuela, in many ways it’s more valuable and more portable.”
With the bolivar plunging, Alcalá called Venezuela a “perfect storm” for cryptocurrency adoption.
“I am old enough to remember when things weren’t this bad,” said Alcalá, who is 38 years old.
You don’t have to be very old to remember when Venezuela was a dramatically different place. In 2013, as the price of oil surged above $100 a barrel, Venezuela’s economy posted its third consecutive annual expansion, growing at 1.3%, according to data from the International Monetary Fund (IMF). A year earlier, it had grown 5.6% and, despite growing debt, lofty oil prices, which make up 98% of the value of Venezuelan exports, meant the country had a steady source of income. Citgo, the oil and gas company, is majority-owned by PDVSA, which is owned by the Venezuelan government.
Fast-forward five years, and the country is in the midst of one of the worst financial crises on record. Latest figures have annual inflation running at around 48,000%, according to Steve Hanke, professor of applied economics at the Johns Hopkins University and one of the world’s leading experts on hyperinflation. And on July 24, the IMF predicted it would hit 1,000,000% by the end of 2018.
So with the bolivar increasingly worthless, Venezuelans are turning to digital transactions. Because of capital controls, Venezuelans are restricted in their ability to obtain U.S. dollars or other foreign currency.