There has been a currency crisis in Venezuela after years of hyperinflation have rendered the domestic currency, the bolivar, worthless. Meanwhile, some merchants in the politically unstable country have been accepting cryptocurrency such as Shiba Inu for payments. Could Shiba Inu be the answer to Venezuela’s currency and inflation woes?
Venezuela has been grappling with hyperinflation for four years now. While the price increases have moderated in 2021, they're still quite high. Inflation can play havoc with currency, as we’ve seen previously in Zimbabwe.
Venezuela's currency crisis
Because of the currency crisis in Venezuela, most transactions there have been happening in U.S. dollars instead of the bolivar. Whereas there's an official reference rate for dollars, there's also an unofficial rate, which we generally see in countries whose citizens have lost faith in their domestic currency.
Things became so bad in Venezuela that even for daily-use goods, you needed a big pile of bolivars to pay in cash. This also burdened the accounting system, as there were too many digits in payments.
“The most important and fundamental reason is that the payment systems are already collapsed because the number of digits make the payment systems and doing the math practically unmanageable,” said Jose Guerra, an economics professor at the Central University of Venezuela. He added that the payment processing systems are intended for a “normal economy,” and not a country facing hyperinflation.
Venezuela’s answer to hyperinflation
In Oct. 2021, Venezuela introduced a new bolivar that has six fewer zeros. What was previously a million bolivars would now be equivalent to one new bolivar. The highest denomination in new notes is currently 100 bolivars.
However, shaving off a few zeros from bolivars hasn’t really solved the country’s monetary crisis—this is the third reduction in zeros since 2008 and the second since 2018. It’s estimated that over half of the transactions in the country happen in U.S. dollars.
Shiba Inu in Venezuela
Digital assets have seen an increase in adoption in merchant transactions. Some merchants in Venezuela have been accepting payments in Shiba Inu, the hottest cryptocurrency over the last month. Shiba Inu fans have been trying to get the meme coin listed on Robinhood as well.
While Venezuela has been in chaos amid currency devaluation and hyperinflation, replacing the bolivar with crypto assets like Shiba Inu might not be the solution. If anything, crypto assets, especially meme coins, are quite volatile. A currency that can rise or fall 50 percent in one day isn't the solution Venezuela needs.
Venezuela would need political stability and sound fiscal and monetary policy to restore faith in its domestic currency. The country has the largest oil reserves in the world, though U.S. sanctions have crippled the country’s exports. The disputed election of Nicolás Maduro has only added to the chaos in the country.
To sum up, Venezuela needs a structural solution to its economic woes. Taking off zeros from the bolivar every few years or finding solace in Shiba Inu would not help the country.