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Bitcoins, Foreign Exchange Controls and Progressivism

Now that Bitcoin has fallen in the trough of disillusionment, I think the best way to approach my thoughts on the thing is thru one of the most frustrating things Venezuelans have had to live for the past 10 years: a local brew of foreign exchange control.

Travel is Evil, and Fists for Chickens

For about 5 years I had to deal with this control as I travelled quite a bit. I saw it evolve, from $4,000/year allowances to 500-page guides on how to prepare your forms to ask for allowances. And after I moved, I had to explain it to people (even those coming from a couple other countries with foreign exchange controls, such as Brazilians and Indians) so I ended up drawing countless diagrams and exploring different narratives to explain something that simply doesn’t belong in this 21st century.

There are two great animated videos that explain it, but they’re in Spanish. So let me try to go thru it quickly: residents of Venezuela aren’t legally allowed to buy and sell foreign currency. They can hold money abroad, sure, but if you live in Venezuela and earn money there, you can’t freely get your money out of the country.

Like my friend Alexander, from Ecuador, who worked in Venezuela for a couple years, made some money, moved out without his money and now has lost about 80% of his net worth there. At one point, the government “suggested” to convert his money in bonds for the aluminum industry, which several reports suggest stagnated in the past months.

You have to go thru a bureaucratic process to earn the right to buy a capped amount of foreign currency, regardless of your net worth and/or needs to access foreign currency. In some cases, such as for online shopping (in foreign retailers such as Amazon, or to pay for services with PayPal, etc.) you get a yearly cap ($400) and in other cases you get a case-by-case cap (for example, for international travel, in which case the amount depends on length of trip and destination, among other factors)

It’s also a discriminatory system since it rewards you (I think it’s actually mandatory for several categories) for having credit cards which are hard to get (I couldn’t get one because of my age, for example, even though I had stable work history for years) and if/when you get access to (minimal) amounts of foreign cash, you are not supposed to bring it back to the country (since you can’t sell them freely, right?)

This system was set up, allegedly, to avoid large Venezuelan companies to move their money out of the country. It also immediately impacted foreign companies that repatriate earnings (such as the Colombian airline Avianca or the Spanish Telco Movistar which are very vocal about them cutting back on large new investments) and of course anyone that needs to import something and pay for it.

But it also means the bolivar is not accepted outside Venezuela anymore, debit cards are useless when travelling and that a black market exists for FX (even mentioning the trading prices is jailworthy) which is subject to all the nuisances of black markets: speculative forces, counterfeit notes, money laundering, etc.

So, one would guess that decades of evidence provide enough insight on what happens when you funnel the economy thru such a bureaucratic system. The results are not surprising: importers either resort to the black market (thus inflating prices) or just don’t import enough to cover local demand. On top of that, a consumist mindset, devaluation and speculative forces add up to a disaster: shortages, high prices, people lining up and fighting for chicken, etc.

Of course, the question I get from most people is: why do laypeople have to suffer for the sins of the large companies, the importers and speculators? Well, 10 years after I think we all agree there’s kind of a political will for denying access to foreign culture thru travel, online shopping and imports – especially high-tech related. And this is useless in a country like Venezuela, whose main business partner is the greatest cultural influence the country has had, from language expressions to the national sport (baseball) practically on par with the Spanish colonists, and where sizeable groups of people of all socioeconomic backgrounds still prefer foreign goods and culture.

While reading this, I remembered the saying: “fascism is cured by reading, racism is cured by travelling” So it’s important to mention that this nonsense also affects the availability of recent books. I recall my trips to Tecniciencia (a technical library) where the only affordable books were about 8086 and FORTRAN. I can’t even imagine how the situation is right now.

Sad stories abound. For technology conferences, for example, if local professionals can’t talk others to come and have the conference locally (which in turn is a hard pitch to make since visitors won’t be able to freely take money out the country) then they’re basically unable to attend. Or you have to pay 5x for an outdated gadget for learning, because using your own money to buy foreign currency to acquire that is superfluous. Even perceptions of technology are influenced by the lack of networking and access to international markets. Not to mention people studying or with relatives abroad, medical or any other urgent need.

The worst part is that 10 years of policy make it cultural. Youngsters are used to this. They don’t need to travel, to meet new people, because everything is just right. They are at the very cutting edge of progressivism, doing all the right things and taking all the right decisions. Or are they?

Hype and Progressivism

While the rest of the world praises Bitcoin for “changing everything”, recent developments give us a more clear picture of what it is, what it isn’t and why trying to make it fit to all discourses is… risky (it’s been interesting to watch a regional trend of groups of FLOSS communities and influencers trying to round their discourse with “new” things such as privacy, encryption and payment mechanisms)

Let’s take a look at them:

  • A security-enhanced (people are starting to cut back on the “encrypted super ultra secure” wording after oh-so-many thefts and DDoS attacks) mechanism for trade is something to praise. The fact that it is open source AND has a good governance makes it better.
  • The fact that is distributed, peer-to-peer and doesn’t depend on central institutions is also a good thing. Not a thing that authoritative governments in culturally-isolated societies would love, but a good thing altogether. Also, it’s not that only in the US it’s illegal to print, mint and use your own coins. I recall this discussion in Ecuador and Venezuela with barter projects.
  • Given that most praise for Bitcoin comes from the BTC/USD exchange rate soaring in the past months (although notably, it plummeted today) it’s important to highlight that it basically changes nothing as people is transacting and thinking of it as being pegged to the USD, EUR or any other fiat currency.
  • Not having a monetary reserve that guarantees the funds (like when you deposit money on a bank, or some banks in some countries) is a liability, like it or not. But most importantly, it means it’s a risk investment, one that is open to the same forces (such as speculation, losing value, etc.) to existing instruments.
  • It changes absolutely nothing in a country like Venezuela. So putting it into your discourse won’t help if you still face a cultural and bureaucratic restriction. You still need government approval to buy some of them, or you need to resort to a dark market, or you need to use CPU power to mine them, for which you need to go to the government for approvals to import them and/or resort to a dark market. So either you are an outlaw or the government is subsidizing your Bitcoins in such economies. It doesn’t scale.

So, if it doesn’t change anything, then why people like it? Because it’s a hell of a payment mechanism. Direct, more secure, no commissions, difficult to trace, etc. Values such as privacy, security, and confidence show up. And there could be years until someone comes up with a more clever approach to it. I’m glad I’m not the only one to set it straight, it’s the top comment on this note about today’s loss of value: any other heavenly property you want to add to it, besides a good transaction method, is your own realm of magic… like your own economic island🙂

And I really hope someone comes up with a better model for handling monetary policy, especially regarding foreign exchange in Venezuela. One that is humanist in nature, and conductive to Venezuela finding its rightful spaces in a global community, not necessarily buying and importing them. It seems that even inside the Government there are dissident voices about how to approach it, which might be a good thing.

I apologize to my Spanish-speaking readers for writing this in English, but I think it was worth it due to the foreign exchange explanation. But feel free to check out this great article about Bitcoin, in Spanish, that I really liked.

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