Cryptocurrency: Venezuelans Turn To Gold And Bitcoin

grarpamp grarpamp at gmail.com
Mon Nov 1 00:46:49 PDT 2021


https://mises.org/wire/venezuelans-turn-gold-nuggets-local-currency-implodes
https://www.bloomberg.com/news/articles/2021-10-20/venezuelans-break-off-flakes-of-gold-to-pay-for-meals-haircuts

Venezuelans Turn To Gold Nuggets As The Local Currency Implodes

The Venezuelan government recently lopped off six zeros from its
hyperinflating currency, the bolivar. The highest denomination
currency note of 1 million bolivars, worth less than $0.25, was
replaced by a one-bolivar note. At the same time, a 100-bolivar note,
worth about $25.00, was introduced as the new highest denomination of
the bolivar. The currency conversion was designed  to spare the
government the embarrassment of having to issue a 100-million bolivar
note to enable people to purchases everyday items without having to
carry around bundles of notes, given that the price of a loaf of bread
had risen to 7 million old bolivars. Of course, the arbitrary scaling
down of the denomination of the currency will not slow inflation,
because the new currency notes can be printed just as cheaply as the
old. The bolivar has already lost 73 percent of its value in 2021
alone and the IMF estimates the annual inflation rate will reach 5,500
percent by the end of 2021.

It is not surprising, then, that all but the poorest Venezuelans have
abandoned the bolivar as a medium of exchange, let alone a store of
value or unit of account. US dollars are the exchange medium of choice
in Caracas and other large cities, while the Colombian peso dominates
along the Colombian border, particularly in the regional city of San
Cristobal. The Brazilian real is current along the southern border
with Brazil and the euro and cryptocurrencies have also found niche
uses.

What is wonderfully surprising is the spontaneous emergence of a pure
gold currency in a remote region of southeastern Venezuela around the
towns of Tumeremo and El Callao. The region abounds with precious
metal ores and has a long history of luring prospectors and miners
seeking their fortunes. Today, however, many of the larger mines are
controlled by the government military, which is battling local gangs
and guerillas. Despite the violence and lawlessness, jobless
Venezuelans from far and wide are flooding into the area to work in
thriving illegal mines in exchange for payment in gold nuggets. As a
result, gold flakes, which are peeled off raw nuggets with hand tools,
have become the currency of choice in the region with prices for
commodities and services quoted in grams of gold. Half a gold gram
buys you a one-night stay in a local hotel, while a meal for two at a
Chinese restaurant and a haircut will cost you a quarter of a gram and
an eighth of a gram, respectively.

The gold flakes are carried in people’s pockets—usually wrapped in the
nearly worthless bolivar notes. While some shops are equipped with
scales to weigh the gold flakes, most sellers and their customers have
become so familiar with the flakes that they evaluate them by sight.
For example, the barber and his customer who transacted for the
haircut agreed that three gold flakes equaled the one-eighth gram
price (approximately $5.00). Gold is also starting to penetrate the
nearby cities, such as the regional capital Ciudad Bolivar, as stores
in shopping malls gladly accept the gold in exchange for dollars from
miners who are seeking to cash out.

For gold to become a full-blown currency that can viably compete with
depreciating dollars and other foreign currencies, the raw nuggets
need to be minted into convenient shapes and sizes and their weight
and fineness certified by reputable firms. This means that any legal
barriers to private mints must be eliminated. In addition, sales and
capital gains taxes on gold must be abolished. Since it is highly
unlikely that these measures will be implemented by the Maduro
government, we can only cheer on the inroads made by the people’s gold
flake currency.


More information about the cypherpunks mailing list