The death of Hugo Chavez presents an opportunity for the new Venezuelan leadership to tone down the rhetoric of anti-Americanism and put our bilateral relations on a pragmatic basis.
The U.S. remains the principal purchaser of Venezuelan oil which is refined in Gulf Coast refineries for later export to China and other markets. Food and pharmaceutical products, cosmetics, spare parts and electrical equipment are bought from the U.S. although payment for these goods is delayed and consumers must wait 4 to 5 months for the new inventory to arrive at Venezuelan ports.
Venezuela is in the midst of an economic crisis with shortages of U.S. dollars, a devaluation of 32 percent and the prospect of searing inflation. Furthermore, Venezuela needs foreign direct investment, technical expertise and spare parts from the U.S.
Rather than demonizing Washington, an opportunity exists for Caracas to reframe the relationship to a realistic mode.
My understanding is that what is driving the interest in cryptocurrencies is a combination of an attempt to find an alternative store of value, separate from Venezuela’s domestic currency, and dirt cheap prices for electricity that makes mining for [cryptocurrencies] competitive with other jurisdictions around the world. Venezuela’s money supply doubled between March 2016 and March 2017, and the inevitable consequence of this is very high inflation, estimated at 800 percent in 2016. Access to traditional stores of value such as dollars and gold is highly restricted by the government, forcing the average person to go to the black market to purchase these, where Venezuela’s currency has been depreciating against the dollar at a staggering rate. In addition, Venezuela’s highly distorted economy, in which energy is so highly subsidized that it is practically free, makes it competitive for [cryptocurrency] miners to operate. The [cryptocurrencies] generated can be used to purchase scarce goods abroad for shipment to Venezuela. Keep in mind that not only is food scarce enough that malnutrition is a serious problem for the first time in decades, but most medicines are unavailable due to severe import restrictions by the government. So Venezuela is uniquely economically mismanaged compared to other South American countries, which together with highly subsidized electricity makes [cryptocurrencies] one of the possible lifelines for some Venezuelans who have the savvy to enter this market. This is not a combination that you are likely to see repeated elsewhere in the region.