The Venezuelan government just recently lopped off 6 nosfrom its hyperinflating currency, the bolivar. The highest denomination currency note of 1 million bolivars, worth less than $0.25, was changed by a one-bolivar note. At the same time, a 100-bolivar note, worth about $25.00, was introduced as the new greatest denomination of the bolivar. The currency conversion was created to spare the federal government the humiliation of needing to release a 100-million bolivar note to make it possible for individuals to purchases everyday products without needing to carry around packages of notes, considered that the rate of a loaf of bread had actually increased to 7 million old bolivars. Of course, the arbitrary scaling down of the denomination of the currency will not slow inflation, since the new currency notes can be printed just as inexpensively as the old. The bolivar has actually currently lost 73 percent of its value in 2021 alone and the IMF estimates the annual inflation rate will reach 5,500 percent by the end of 2021.
It is not surprising, then. that all however the poorest Venezuelans have abandoned the bolivar as a cash, let alone a store of worth or system of account. US dollars are the exchange medium of option in Caracas and other large cities, while the Colombian peso dominates along the Colombian border, particularly in the local city of San Cristobal. The Brazilian real is current along the southern border with Brazil and the euro and cryptocurrencies have actually also found niche usages.
What is splendidly unexpected is the spontaneous development of a pure gold currencyin a remote area of southeastern Venezuela around the towns of Tumeremo and El Callao. The region is plentiful with rare-earth element ores and has a long history of drawing prospectors and miners seeking their fortunes. Today, however, a number of the bigger mines are controlled by the federal government armed force, which is battling regional gangs and guerillas. Despite the violence and lawlessness, out of work Venezuelans from everywhere are flooding into the location to work in flourishing unlawful mines in exchange for payment in gold nuggets. As an outcome, gold flakes, which are peeled off raw nuggets with hand tools, have become the currency of option in the region with prices for products and services estimated in grams of gold. Half a gold gram buys you a one-night remain in a regional hotel, while a meal for two at a Chinese dining establishment and a haircut will cost you a quarter of a gram and an eighth of a gram, respectively. The gold flakes are brought in individuals’s pockets– usually covered in the almost worthless bolivar notes. While some shops are geared up with scales to weigh the gold flakes, a lot of sellers and their consumers have become so knowledgeable about the flakes that they assess them by sight. For instance, the barber and his client who transacted for the hairstyle agreed that 3 gold flakes equaled the one-eighth gram price (approximately $5.00). Gold is likewise beginning to permeate the nearby cities, such as the regional capital Ciudad Bolivar, as shops in shopping malls gladly accept the gold in exchange for dollars from miners who are seeking to squander.
For gold to become a full-blown currency that can viably compete with diminishing dollars and other foreign currencies, the raw nuggets need to be minted into practical sizes and shapes and their weight and fineness accredited by credible firms. This suggests that any legal barriers to private mints need to be eliminated. In addition, sales and capital gains taxes on gold must be eliminated. Considering that it is highly unlikely that these measures will be carried out by the Maduro government, we can just cheer on the inroads made by the individuals’s gold flake currency.