by Joseph Young
Amid plunging global oil prices and a rapidly devaluing currency, the Venezuelan government has declared an Economic State of Emergency for 60 days, to protect the social rights of education, health, housing, and sport for all Venezuelans.
Since early January 2016, the Venezuelan currency has inflated by a staggering 200%, as the country struggles from severe shortages of basic goods. With oil trading below $28 USD a barrel an average, the country has already used up the majority of its cash reserves with little new funds coming in.
According to the government, led by President Nicolas Maduro, the country will deal with the issue by “increasing the faculties of the National Executive, with the temporary restriction of permitted constitutional guarantees and the execution, monitoring, supervision and inspection of the measures that are adopted according to the law.”
The financial crisis of Venezuela falls under article 338 from the country’s official constitution, which states that “A state of alarm may be declared when catastrophes, public calamities or other similar events occur, seriously endangering the security of the Nation or its citizens. Such state of exception shall last for up to 30 days, and may be extended for an additional 30 days.”
Over the next 30 days, Venezuelans will be subject to strict capital and currency controls, in an attempt to stabilize the value of the country’s currency and commodities. At this rate of inflation and economic instability, the International Monetary Fund (IMF) predicts that Venezuela’s economy will decline by another 6%, in addition to the 10% drop in 2015.
If the federal government fails to recover its economy and continues to struggle to lower the skyrocketing inflation rate of the currency, and if it is deemed to be endangering the security of the nation, then the economic emergency period could possibly be extended by another 30 days.
During this period, Venezuelans will have to participate in the initiatives of the government. Yet, the central bank of Venezuela has not mentioned the possibility of a capital control regime, which most possibly will take a significant percentage of funds from registered bank accounts with fairly large savings.
With the entire economy being reliant on the country’s oil industry and the currency depending on the performance of the economy, not a single commodity, asset, currency, or means of payments in the country is independent. Thus, it is virtually impossible to store wealth in a stable store of value because of the country’s dependency on oil.
In these type of financial situation, independent currencies like Bitcoin could enable Venezuelans to avoid extreme volatility they already have been suffering from. Since it has become more difficult to acquire foreign currencies due to the Economic State of Emergency period, storing their savings in a store of value with high international conversion rate and liquidity will greatly benefit the Venezuelans.