With Venezuela gripped by hyperinflation, the use of dollars has emerged as an alternative to overcome the lack of bolivar bills and to protect the income of citizens.
Up until now, the country’s dollarization has been an informal process among residents.Recently, it has also been embraced by the government. In November 2019, President Nicolas Maduro said dollar transactions in Venezuela were an “escape valve” amid a deep recession and U.S. Sanctions.
And over the last two years, the country began to change its regulations. It has started to loosen currency controls implemented over the last fifteen years, and to expand the use of foreign currencies at local bank accounts.Other factors have also played a role, like a nationwide power outage in 2019 which stopped bank operations for several days.
The COVID-19 pandemic has also pushed the need to have an alternative to bolivars.The local currency has lost almost 99% of its value in just over a decade, shedding almost 73% in 2021 alone.In 13 years, the Venezuelan government has removed 14 zeros from the value of the bolivar.
To cope with that Venezuelans are adopting foreign currencies to preserve their incomes.Jhoan Villegas, who lives in Caracas, transports people to Petare, one of Venezuela’s largest slums.Villegas says he has noticed how transactions using bolivars are slowly disappearing.
“The bolivar is useless, it is not a guarantee here or anywhere, and here it is worthless.” Villegas said.After four years of hyperinflation, bolivar bills are scarce and dollars are becoming more present in daily routines like paying for a bus ride.
“These days you try to pay with a dollar and you need to spend it all, because there is no change," says Caracas resident, Helen Pacheco. A leading financial consulting firm based in Caracas, Ecoanalítica, estimates 67% of all retail transactions in Venezuela are now made in dollars.
The money often comes from savings, remittances, digital payment methods or relatives traveling home with cash.Store owners have also adapted to the new reality. Luis José Gómez owns a grocery store in the Petare slum and says the merchandise he sells is priced in U.S. dollars.
“The dollar goes up and the bolivar has been devalued, so you earn less, so it is more profitable to work in dollars.” Gómez says using dollars is simpler and helps to keep the economy moving.However, economists argue dollarization doesn't help Venezuela’s long-term economic crisis.Especially as most of the local salaries remain in bolivars.
Three in four Venezuelans live in extreme poverty, according to an academic study conducted by Venezuelan universities. Economists say the unregulated dollarization taking place is widening the gap between those who have access to dollars and those who don’t.
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