How Bitcoin Is Being Used to Beat Cash Shortages and Inflation

The economic woes suffered in countries such as Zimbabwe and Venezuela have led to people turning to bitcoin as a possible solution.

In Zimbabwe, the hyperinflation in 2008 led to the African country using the US dollar as its main currency. However, a chronic lack of dollars means that they can change hands for far higher amounts than the face value.

In addition, the country’s own bond notes that have been recently been issued haven’t come close to solving the problem, with food imports recently being banned to try and avoid wasting currency. This has led to what the Zimbabwe Independent newspaper called a “debilitating liquidity crunch” with an acute shortage of cash across the country.

Previously, the problem was that there was plenty of money swilling around but no goods to buy with it, making the Zimbabwean currency virtually worthless. Now, the issue has been reversed and there are things to buy but no money to do it with.

The lack of paper money in circulation has “severely crippled companies” who simply don’t have enough cash. The whole country relies on imported US dollars but the fact that bitcoin can be exchanged digitally means that the cryptocurrency had been enjoying a booming trade lately.

While the relatively low volumes traded in Zimbabwe mean that it is unlikely to affect the global price for bitcoin, local reports suggest that the currency is trading there at around $10,000. This is $400 (£300) more than elsewhere in the world, due to the fact that demand there is far higher than supply right now.

People in the African country have been using bitcoin to pay for goods bought online without having to deal with banks or other financial institutions. This had led to suggestions that digital currencies could produce some interesting anomalies around the world, as smart investors cash in by using them to alleviate local cash shortages.

Fighting Back Against Inflation in Venezuela

A similar effect has been occurring across in Venezuela, but for different reasons. Reports from the troubled South American country suggest that more than 100,000 people there are now mining bitcoin to beat the fact that their own national currency is worth less with every passing day.

Rampant inflation in Venezuela has seen the value of the Bolivar currency drop massively. An increase in prices of around 460% in the last year or so has seen people turn to bitcoin trading as a way of protecting themselves against inflation.

It has been suggested that mining bitcoin is now big business in Caracas, with one report mentioning that using 20 PCs can earn the owner some $800 each month. Even simply trading the digital currency is seen as a clever way of protecting themselves against the high inflation, as they move out of Bolivars and into a currency that has been gaining in value.

Bitcoin transactions in Venezuela are said to have amounted to some $1.1 million (£835,000) in the last week of September. Some analysts even think that it could become the first country to fully use bitcoin as an everyday currency.

It remains to be seen where the next country to enjoy a bitcoin boom is. However, it seems clear that the possibilities opened up by digital currency trading are going to lead to more and more interesting uses of these currencies.