Whether US dollars, Brazilian reals, euros or Bitcoin: all Venezuelans use alternative currencies in everyday life, because their own, the bolivar, will soon be worthless.
Venezuela showed what happens when states keep printing money. Just recently, on October 1st, the Venezuelan government removed six zeros from its hyperinflationary currency. Previously, the highest denomination of one million bolivars was worth less than $ 0.25. It has now been replaced by a one-bolivar note. At the same time, a 100 bolivar note with a value of around 21.56 euros was introduced as the new highest denomination for the bolivar.
The currency conversion saved the government the embarrassment of having to spend a 100 million bolivar note so people could buy everyday things without having to carry around bundles of money. Most recently, the price of a loaf of bread had risen to seven million bolivars. Of course, the arbitrary downsizing of the currency’s face value will not put a brake on inflation, since the new bills can be printed as cheaply as the old ones. The bolivar has already lost 73 percent of its value in 2021 alone, and the International Monetary Fund estimates that annual inflation will reach 5500 percent by the end of the year.
Citizens are used to such changes. The central bank of the once rich oil country has already deleted 14 zeros in three devaluation rounds since 2008. Unsurprisingly, with the exception of the poorest Venezuelans, all citizens no longer use the bolivar as a medium of exchange, let alone as a store of value or as a unit of account.
In Caracas and other major cities, the US dollar is the preferred medium of exchange, while the Colombian peso dominates along the Colombian border, particularly in the regional city of San Cristobal. The Brazilian real is in use on the southern border with Brazil, and the euro and cryptocurrencies like Bitcoin have also found niche uses.
The spontaneous emergence of a pure gold currency in a remote region in southeast Venezuela around the cities of Tumeremo and El Callao is astonishing. The region is rich in precious metal ores and has long been attracting prospectors and miners who seek their fortune here. Today, however, many of the larger mines are controlled by the military, who fight local gangs and guerrillas. Despite the violence and lawlessness, unemployed Venezuelans flock to the region from near and far to work in the flourishing illegal mines and to be paid for in gold nuggets.
Gold nuggets are naturally occurring pieces of gold with a high gold content that have been detached from gold-bearing rock formations by wind, rain or currents without human intervention. In Venezuela, gold platelets are now being peeled out of the raw nuggets using hand tools. Currently these tokens have become the preferred currency in the region.
The prices for goods and services are given in grams of gold. Half a gram of gold gives you an overnight stay in a local hotel, while a meal for two in a Chinese restaurant and a haircut cost a quarter and an eighth of a gram, respectively.
The gold plates are carried in people’s pockets – usually wrapped in the almost worthless Bolivar bank notes. While some stores have scales to weigh the gold platelets, most sellers and their customers are so familiar with the platelets that they judge them by eye.
For example, the hairdresser and his customer who concludes the haircut deal agree that three gold plates correspond to the price of an eighth of a gram (about 4.31 euros). Gold is also gradually entering the market in nearby cities, such as the regional capital Ciudad Bolivar, as the shops in the shopping malls are happy to accept gold in exchange for dollars from miners who want to get rid of their money.
However, gold is still not a fully-fledged currency. To do this, the raw nuggets would have to be shaped into suitable shapes and sizes and their weight and fineness would have to be certified by reputable companies. As before, however, there are legal obstacles for private mints. In addition, there are sales and capital gains taxes on gold. This is unlikely to change under the Maduro government. That is why the people are content with this gold nugget currency and are currently getting by with it, it seems, quite well.
Venezuela’s hyperinflation is the result of years of government intervention in currency trading, the prices of almost all goods and services, and of course monetary policy. In addition, entire industries were nationalized.
In contrast to the time of the late President Hugo Chávez, the oil country can no longer look forward to a booming oil expert. On the contrary: it exports less and less oil. To finance the imports, the government is running the money press faster and faster. Inflation has mostly been in double digits for the past two decades. In 2017, it reached the three-digit rate for the first time at 438 percent – and has been rocketing through the roof ever since. The previous high point of the currency devaluation took place in 2018 with 130,000 percent devaluation. Last year, the boliviano lost 1984 percent, as reported by the independent economic institute Oberservatorio Venezolanao de Finanzas.