Bitcoin and Venezuela
Lessons from Venezuela on Currency Devaluation and Financial Freedom
While I was living in Venezuela in 2010, I once tried to withdraw money - Venezuelan bolívares - from an ATM using my Commerce Bank (now TD Bank) debit card.
I’d withdrawn money from ATMs all over the world using this debit card, and it didn’t even cross my mind that it might not work when I inserted it into the machine and punched in my password.
But, to my dismay, it didn’t work. ¡No bolívares for me!
Turned out that the issue wasn’t with that one ATM, but with all ATMs in Venezuela. They weren’t/aren’t connected to the global banking system.
So, I learned firsthand that day what it’s like to be cut off from the international financial system.
Granted, I’m not a Venezuelan, and I in no way share this story thinking that it parallels the financial issues that everyday Venezuelans face - AT ALL. And I ended up figuring out some other way to get the cash I needed (though, I don’t remember how off the top of my head).
I share the story, though, because I still remember that feeling of helplessness, as it was just a small taste of what being cut off from the international financial system feels like.
Back then, the Bitcoin network was only about a year old, and there isn’t a doubt in my mind that I would have considered anyone who suggested I use it to transfer value from the US to Venezuela a scammer.
Now, my feelings about the Bitcoin network are quite different (as you may have intuited if you’ve been reading this newsletter for, well, just about any amount of time).
So, last week, when I attended a virtual meeting with higher ups at the PDVSA, Venezuela’s nationalized petroleum production company and heard them discuss how hopeless the people of Venezuela are and how Bitcoin and US dollar stablecoins have been a lifeline for some Venezuelans, I got emotional.
And when I listened to Alex Gladstein, Chief Strategy Officer for the Human Rights Foundation (and also the guy who tweeted a link to an article I wrote two weeks back (see below) - sorry, still excited about that) interview Leopoldo Lopez, the Venezuelan opposition leader who spent two years in prison after challenging Venezuela’s current dictator, Nicolás Maduro, I also got emotional.
I got emotional particularly when Lopez discussed how he was part of a project that helped to get money into Venezuela using crypto assets - circumventing the “financial system of the dictatorship,” as he put it. I highly recommend that you listen to the full interview.
What is more, Lopez discusses how upwards of $0.97 on the dollar actually went to nurses and other aid staff in Venezuela when they transferred value using Bitcoin and crypto vs. the usual $0.40 on the dollar that usually makes it to people in need when you donate to charities via traditional financial rails.
One of the most important points that Lopez made about Bitcoin/crypto in the interview is the following:
“I hope that this community [the Bitcoin community] sees beyond the United States, beyond Europe, beyond the market where this is happening and this is kind of where innovations [have] happened up until now… Look to Africa, look to Latin America, look to Southeast Asia, look to Eastern Europe; that’s where this is not a luxury, it’s a need. It’s vital. You either use an alternative to fiat money or you just don’t have the possibility to do any transactions.”
He went on to say the following:
“I am convinced that there is a convergence between financial freedom and political freedom, and in that convergence, I think there needs to be a lot of attention.”
Gladstein contextualized what Lopez had to say a bit:
“4.3 billion people live under an authoritarian regime that can just arbitrarily turn off your money and nearly 2 billion people are unbanked. So, we’re talking about the lion’s share of people on this planet that don’t have the same financial freedoms that we enjoy. 2 billion people live under double-digit inflation at this point. So, again, we’re talking like the 1 billion people who live in Europe, the United States and Japan let’s say who have relatively stable - at least for now - currencies and robust financial infrastructure. We are the minority. We’re like the bubble. But most people in the world live in a society [where] either their government is autocratic or repressive or because they’re just living in a society that doesn’t have the same kind of capabilities and is poorer or because they’re cut off for some reason from the international financial system…”
Having experienced that last point he made firsthand, his words resonated with me.
If you want to learn more about the impact that Bitcoin has had in Venezuela, I recommend listening to the following interview, featuring Mauricio Di Bartolomeo, the Venezuelan co-founder and CSO of Ledn, the Bitcoin borrowing and lending platform.
If you’re thinking, “Oh Frank, that kind of stuff only happens in countries like Venezuela and with currencies like the bolívar… Why should I care about this?!”, then I recommend that you listen to the following talk:
One of my favorite quotes from it came from the moderator, Dylan LeClair:
“[UK bonds (gilts)] are down more than bitcoin in dollar terms this year.”
Let me rephrase that: A “risk-free asset” issued by a major developed country is down more than Bitcoin in dollar terms in 2022. (And now that country has to further devalue its currency in efforts to prop up its bond market so that its pension system doesn’t become insolvent. Sounds like some totally “first world” stuff here. Totally.)
Many people around the globe currently and may soon find themselves in a situation that more closely resembles the financial situation that Venezuelans are currently in.
And the ripple effects of that - from mass migrations to food shortages to wars - will likely have an impact on almost everyone on this planet.
Best,
Frank
Twitter: @frankcorva
(For the record, I’m just sharing this meme because it’s really funny. I don’t think what’s currently happening regarding inflation should all be blamed on Biden. What’s currently playing out is five decades in the making. Biden just happened to be at or very near the helm since 2009 - when we really accelerated the money printing… But that began in response to how irresponsible and terrible our 43rd president - über clown and war criminal - George W. Bush was. Okay, I’m done.)