Pay for your food with gold… Venezuela back 100 years ago

The village of Tumeremo in the southeast of Caracas, the capital of Venezuela. George Pena, 20, carries gold in his pocket. Neither a gold ring nor a gold bracelet. These are pieces of gold that have been cut into small pieces. This is because it serves as the currency of the region. Venezuela’s fiat currency, the Bolivar, has been turned into pieces of paper due to murderous inflation and is not accepted anywhere.

Gold here and real there… Different currencies in each region

Pena gave a specific example, saying, “Everything can be done with gold here.” If you stay at the hotel for one night, you pay 0.5g of gold, and if two people dine at a Chinese restaurant, you pay 0.25g of gold. The haircut fee is 0.125 grams of gold.

There is no need to weigh each time you trade with gold. People here are accustomed to it and can tell by guessing. Pena explained, “If you have three small pieces, it’s about 0.125g, and in US dollars, it’s about $5.”

Bloomberg News introduced this reality on the 20th (local time) in an article titled ‘People of Venezuela tear off pieces of gold to pay for food and haircuts’. Although the world had already switched from gold to fiat currency 100 years ago, this is happening in Venezuela as trust in the fiat bolivar has fallen, Bloomberg said. He added that the most reputable ones in the region are being used as a substitute for money.

Gold is the medium of exchange in southeastern Venezuela, as in the town of Tumeromo, but further south, the Brazilian real is the dominant currency. It is close to the border with Brazil.

In the western part of the Colombian border, the Colombian peso plays the role of currency. In San Cristobal, the largest city in western Venezuela, more than 90% of all transactions are in pesos, according to Colombian research firm Ecoanalytica. On the other hand, in large cities like Caracas, the US dollar has a major currency status.

“The euro and cryptocurrencies also have niche markets in some regions,” Bloomberg said.

photo = Yonhap News

Coffee prices soared 1737% due to murderous inflation

The reason why the dominant currency differs in the east, west, north and south is due to the murderous inflation. It is the influence of more than 20 years of socialist regimes led by Hugo Chavez and Nicolas Maduro. In particular, the centralized planned economy and welfare populism were particularly damaging.

As a result, Venezuela’s economy, which was the world’s largest in terms of oil reserves, quickly shrank. Venezuela’s 2019 economic growth rate was -35% and the inflation rate was 19,906%, as presented in the World Economic Outlook released by the International Monetary Fund (IMF) in October last year. In 2018, it was predicted that the inflation rate would reach 10 million percent. The result was 65,374%.

Coffee prices, which are relatively easy to obtain in Latin America, also rose 1737% over the past year. It is difficult to accept this number, so Venezuela has not released an official inflation rate for several years.

As the murderous inflation continued, Venezuela pushed for monetary reform. On the 1st, after three years, the red-nomination (change in monetary unit) was again carried out on the 1st to 1 million basis. This means that the value of the Bolivar currency will plummet to 1 part per million. This is the third after the monetary reform of ‘1000 to 1’ in 2008 and ‘100,000 to 1’ in 2018.

However, Bolivar’s status is still declining. Luis Vincent, an economist at the Leon Datanalisis Institute, said: “Venezuelans have no choice but to prefer a currency other than the bolívar because the bolívar does not function as a store or exchange of wealth.

Washington = Correspondent Jeong In-seol surisuri@hankyung.com