Venezuela Goes Digital–It Won’t Fix the Problem
Venezuelan President Nicolas Maduro recently announced that the country will be moving toward a “fully digital” economy. The South American nation has struggled in recent years with rampant shortages of staple goods, civil unrest, and hyperinflation. According to the opposition-controlled National Assembly, consumer prices rose more than 65 percent in November, placing the interannual inflation rate up over 4,000 percent. (The Maduro regime stopped publishing official data.)
The Venezuelan Bolivar has lost 99 percent of its value in three years and bank notes are practically useless. Buying even small staples in cash requires individuals to carry obscene amounts of bank notes. In ways reminiscent of historical cases of hyperinflation, Venezuelans have found alternative uses for their paper currency–from toilet paper (because there’s a shortage) to making purses. As a result, many people have turned to alternative currencies. According to Maduro, nearly 20 percent of all commercial transactions in Venezuela take place in U.S. dollars. Some 77 percent of transactions occur with Bolivars via debit cards. Just 3 percent of transactions take place with bank notes.
Maduro places blame for the country’s problems on the United States. “They [the U.S. government] have a war against our physical currency. We are moving this year to a more profound digital economy, in expansion. I’ve set the goal of an economy that’s 100 percent digital.”
While Maduro is correct that the U.S. government isn’t particularly fond of his administration, Venezuela’s problems are the direct result of his own economic policies and those of his predecessor, Hugo Chavez. As Nobel laureate Milton Friedman famously said, “Inflation is always and everywhere a monetary phenomenon.” The Venezuelan government has printed money hand over fist, thus causing their inflation.
The problems created by Venezuela’s currency problems are further exacerbated by a cornucopia of other patently backward economic policies. From frequent minimum wage increases to price ceilings on all sorts of staple goods, it’s no wonder that many Venezuelans have chosen to leave by whatever means they can.