The collapse of Venezuela, explained
Vox video above published Aug 25, 2017: Venezuela is in chaos, but its leaders aren't going anywhere. Discussion of currency issues begins about 4:30. [Correction at 1:58: the Supreme Court tried to strip the country’s National Assembly of its powers in March 2017 (not 2016)].
After a decade and a half of strict exchange controls in
Venezuela, access to
U.S. dollars has been severely limited. Nonetheless, a black market in the world's foremost
hard currency has spread in response. Venezuela's oil revenues have declined due to mismanagement and the decline in the price of oil on the world markets.
Venezuela’s economy is now in
free-fall, a living laboratory of whether
Bitcoin or any other
cryptocurrency could fulfill the needs of the market and economy. In fact,
Venezuela has a plan to introduce its own cryptocurrency.
Unfortunately for cryptocurrency fanatics, so far, Venezuelans are
not seeking any cryptocurrency. Instead, the practice first adopted by gourmet and design stores in Caracas over the last couple of years to charge in
U.S. dollars to a select group of expatriates or Venezuelans with access to the
greenbacks, is
fast spreading--
Venezuelans scramble to survive as merchants demand dollars | reuters.com Dec 26, 2017:
“There’s no point keeping bolivars.”
In fact, several countries use the
U.S. dollar as their
official currency, and in many others it is the
de facto currency.
Definitions:
Cryptocurrency: "a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank."
Hard currency: "currency that is not likely to depreciate suddenly or to fluctuate greatly in value." Bitcoin and other "cryptocurrencies" are
not "hard currency." The
U.S. dollar is the world's foremost "hard currency."
Fiat money: "inconvertible paper money made legal tender by a government decree." Fiat (by government decree)
currency was introduced as an alternative to
commodity money and
representative money.
Commodity money is "created from a good, often a precious metal such as gold or silver, which has uses other than as a
medium of exchange (such a good is called a
commodity). Representative money is similar to fiat money, but it represents a claim on a commodity (which can be redeemed to a greater or lesser extent)."
The circulating paper money of the U.S. consists of
Federal Reserve Notes that are denominated only in
United States dollars (12 U.S.C. § 418).
Federal Reserve Notes are
the only type of U.S. banknote currently produced. Federal Reserve Notes are authorized by Section 16 of the Federal Reserve Act of 1913 and are issued to the Federal Reserve Banks at the discretion of the Board of Governors of the
Federal Reserve System. The notes are then put into circulation by the Federal Reserve Banks, at which point they become
liabilities of the Federal Reserve Banks and obligations of the United States. Federal Reserve Notes are legal tender, with the words
"this note is legal tender for all debts, public and private" printed on each note. They have replaced United States Notes, which were once issued by the Treasury Department.
Federal Reserve notes are backed by the
assets of the
Federal Reserve Banks, which serve as collateral under Section 16. Total assets of the U.S. Federal Reserve Banks as of
Dec 20, 2017, were almost $4.5 trillion. There were approximately $1.55 trillion in
Federal Reserve notes in circulation as of
November 15, 2017.
If you've got it, flaunt it:
Why is the U.S. dollar in such demand in Venezuela?
- The U.S. dollar (traded in paper money form solely by Federal Reserve Notes) is a "hard currency" and the world's most dominant reserve currency;
- Unlike many other countries, the U.S. dollar has "never been devalued, and its notes have never been invalidated"--The US [Dollar] Will Remain the World's Reserve Currency | Investopedia.com;
- U.S. dollars are easily exchanged for any other foreign currency and the U.S. dollar does not fluctuate greatly in value against a basket of other hard currencies.
- U.S. is still the world's largest economy, with the world's largest military.
Also note the differences between
hard currencies, like the U.S. dollar, and any
cryptocurrency:
- Cryptocurrency scams, frauds, and theft are rampant:
Lesson: if you want to speculate or "gamble" in Bitcoin or other cryptocurrencies, do
not do so under the delusion that
any cryptocurrency outside the
world's central banking system, will replace the U.S. dollar, or any other "hard currency," in the foreseeable future.
How To Protect Your Bitcoin From Hackers
CNBC.com video above published Dec 26, 2017: CNBC's Seema Mody reports on bitcoin.
