In answer to the question “Can an economic basket case like Venezuela possibly get any worse?” The unfortunate answer is “Yes.” A combination of corruption, very uncertain application of laws and incredibly stupid policies have transported the country back centuries in time towards a barter economy.
Much of Venezuela, from small towns to cities, no longer have any use for its country’s essentially worthless currency. The Venezuela bolivar has depreciated more than 97.5% against the U.S. dollar over the past year. Annualized inflation is expected to be greater than 2,000% during the coming year. By the time you finish reading this article, the bolivar will be worth less than it was when you started.
Since using Venezuela’s currency is essentially impossible, many people have reverted to barter. However, it is sort of barter with a strange twist. One part of this dysfunctional economy still manages to exist in the 21st century – marketing. In a sort of weird combination of the ancient and modern worlds, people must trade for what they need but manage to find each other using Facebook and other forms of social media. Thanks to the internet they can display pictures of goods like flour, sugar or very hard to acquire Coca-Cola. Not to mention more modern items like medicine or computer parts.
It is not just the ordinary people suffering from Venezuela’s economic disaster. The government, having exhausted nearly all of its foreign exchange reserves, is being forced to try to convince its trading partners to accept a variety of unusual payments. Rather than demanding currency, the Venezuelan government lacks, would they accept payment in gold, diamonds or other precious stones? While using commodities as payment is certainly not unheard of for oil or mining companies, this is most definitely not true for most other businesses. Venezuela’s health minister recently met with representatives from major pharmaceutical companies the country depends on to provide vitally needed medical supplies. He asked if they would accept diamonds as payment, in lieu of the cash Venezuela lacked. The pharma reps were understandably shocked. Unsurprisingly, they had absolutely no authority to accept such an arrangement without approval from their superiors. When speaking to each other after the meeting, the conversation likely featured a number of questions they never imagined having to ask. These probably included: “Which one of us has to tell this story to the home office?” and “Will they even believe this?” If there was a joker in the group, he or she probably said: “Now I have the strangest story to tell at a cocktail party.”
Even if the international companies who are owed the approximately $5 billion in debts are willing to accept gold or other precious stones, actually providing them is uncertain at best. Considering the country’s very opaque finances, it is not known how much Venezuela holds in certified precious metals and stones. The government unilaterally pulled out of the international Kimberley Process, which certifies the origins of diamonds, for eight years until it re-entered in 2016. Therefore, what the stones it has are really worth in unknown.
There is also the very serious, and conveniently unmentioned problem of recovering the diamonds and other precious minerals. These are largely controlled by criminals in the country’s lawless jungle states of Amazonas and Bolivar. To make matters even worse, the Venezuelan government does not have an exemplary record when it comes to dealing with its violent criminals.
In an attempt to help stave off bankruptcy, Venezuelan President Nicolas Maduro recently promised to back a soon-to-be-launched digital currency with $5 billion of gold and oil. How successful this venture will be is uncertain at best.